B2C insurance companies have a problem. A monumental one. They’re in an arms race to the marginless-bottom, at-risk of becoming a commoditised, price-only based purchase.
With hugely expensive customer acquisition, declining renewal rates and levels of customer apathy meaning that many customers struggle to name their current motor or home insurance provider, we think there’s a burning platform to change the structural status quo.
We think there’s a significant opportunity to be tapped by really strengthening brand loyalty among customers and by focusing on delivering excellent customer experiences. To get there, insurers need to face up to their current challenge and heed some lessons from the wider world of effective customer engagement.
On the customer retention front, the insurance industry is a serial loser, with a retention rate of 84% for top companies versus 95% in other sectors. The numbers paint a bleak picture: 42% of British consumers are not loyal to their home, car or life insurance provider, and only 8% have been loyal to their insurer for more than three years. Only 1 in 10 customers feel like they’re a valued customer to their insurer.
This is only compounded by spiralling acquisition costs in a saturated market and a constant struggle for consumers to differentiate between products and brands. High churn rates and margin pressure are here to stay – and will only get worse for insurers that don’t adopt new ways of thinking about providing exceptional services and building profitable relationships with their clients. Brands need to recognise and counteract two (interconnected) factors that are driving the endemic short-termism of the consumer insurance market.
1. The aggregator addiction: Price comparison websites have commoditised insurance products, leading to options that are completely undifferentiated, except on price. As a result, many consumers prioritise price over any particular affinity to the brand itself when buying insurance for motor and home.
2. Fairweather friends: A large proportion of policy holders won’t claim in an average year – so renewal time is a moment of truth: a referendum on a customer’s loyalty to the insurer’s product and brand. The stakes are high commercially too, as across the industry acquiring a customer costs nine times more than retaining one. Despite the size of this prize, insurance brands frequently fail to invest in keeping policyholders happy throughout the year – not just at renewal stage – missing out on retention and having to acquire new at a heavy cost.
The conclusion is simple. Insurers need to think bigger than the race to the bottom driven by aggregator-assisted price competition. Instead, they need to find ways to add genuine value to customers throughout the duration of the policy, building their brands and providing reasons to stay loyal.
Insurers need to think creatively about ways to differentiate themselves from the competition. By creating regular and meaningful touchpoints with customers, brands can create positive experiences that add value that goes deeper than just the legal requirement to have home and motor insurance. The advantage is that this approach builds habitual engagement, making it stickier for customers and ultimately driving retention.
Touchpoints can include regular cover reviews and check-ins, such as an initial call to help a customer set up, followed by another call six months later to reinforce the value to those that are engaged.
Rewards programmes encourage customers to engage more frequently. In addition, customers are more likely to spend more or opt for higher premiums if reward programmes are well-designed and engaging.
Reward programmes help to achieve two key goals:
Vitality is one example of an insurance provider who has created a rich reward programme based on behavioural economics, focussing on preventative measures. By connecting a driving sensor linked to the Vitality app to monitor driving patterns, drivers can earn monthly cashback, a weekly reward and lower their excess by up to £250 in the event of a claim.
In terms of programme engagement effectiveness, the proof is in the pudding. An independent analysis of the Vitality Health App showed that Vitality has the highest 30-day app retention rate in the health and well-being market at 68%. For context, this is 107% higher than their average competitor.
By using data to personalise product offerings, this approach enables insurers to then set competitive premiums. Concepts such as psychographic segmentation (for example segmenting customers into retirees, students, or first-time homeowners) can help insurers target specific customer subgroups to create better emotional connections with them through targeting experiences and offerings. If personalisation is done well, then consumers will be less likely to cancel a policy. Not only this, but keeping clients happy can lead to more cross-sell and upsell opportunities.
ZhongAn, China’s first 100% online insurance company, launched its ZhongAn Answer chatbot in 2018, which recommends insurance policies to new and existing customers with 94% accuracy. This company knows customers so well that it is able to offer protection products around activities in your life that have become increasingly frequent, such as replacing your damaged phone or being compensated for a delayed flight while waiting for it!
Also integral to driving brand loyalty is the experience your customers have when they interact with your product. Delivering high-performing experiences is key.
Insurance firms should invest in apps with a user-friendly interface. This can mitigate switching. According to research by PWC, the number of customers switching insurance providers because of the lack of good customer portals has increased by 80%.
Bundling other products and services can also increase value for customers. Having all your insurance products in one place, with one provider, can greatly improve the customer experience by increasing convenience. This is certainly a preferable approach to hunting around for your insurance details to remember which brand insured your home when you need to make a claim for a leak.
By bundling products in this way, insurers can offer discounts on premiums for customers, while also increasing brand affinity and their share of wallet.
The rewards of increased customer loyalty are difficult to overstate. A recent study from Invesp found that increasing your customer retention rate by just 5% can boost your profits by 25% – 95% – a powerful proof point for the impact of lower customer acquisition costs. Vitality – a leading practitioner of the loyalty-driven approach we’re recommending – saw sales and profit uplift of 28% year on year from the rewards programmes they implemented.
In addition, these approaches can positively impact insurers’ loss ratios. Preventative measures are able to reduce the risks of customers having accidents and making claims. This means insurance company profit margins get a healthy boost if the premium discount is offset by fewer and cheaper claims.
Trialling the opportunity doesn’t need to be a daunting process. Insurers can partner with other providers to deliver enhanced capability, making smart usage of test-and-learn programmes to refine ideas until they are ready to scale. It is increasingly apparent that the long-term risk of staying still – and carrying with a margin-eroding race to the bottom – far outweighs the short-term costs of testing a new direction.
Manifesto are experts in identifying and implementing loyalty programs, high-performing experiences and innovation strategies that drive consumer lifetime value. We specialise in developing strategies that put the customer front and centre, where they belong. Having worked with a number of leading businesses across the financial services sector, we have developed a proven track record of building long-term customer loyalty. Contact us to find out more.
© 2023 Manifesto Growth Architects Manifesto Growth Limited, is a company registered in England and Wales with a registered office at 9 Castellain Road, London, England, W9 1EY.
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