Are digital insurance sales alienating customers?

When it comes to customer acquisition, the Bain study suggests advertising spending directly correlates with customer acquisition rates. The top performers in acquisition spend approximately 50% more than average on advertising per customer.

Ads tend to convey one of two themes: low price or peace of mind, appealing to the two distinct customer bases. While some campaigns emphasize convenience, acquisition leaders tend to gravitate toward price-based themes, as customers tend to defect because of a lower priced offer somewhere else.

Of the customers who lapse because of price, more than half move to a carrier with which they save less than 20% on their premium, and approximately a quarter of these customers save 10% or less, revealing that price-sensitive customers will switch carriers without much persuasion.

While this dynamic pertains more to auto than home coverage, defection rates run higher among customers who are young and have lower incomes. They may have fewer insurance needs and use only digital channels. Considering, however, that this profile composes the bulk of new customers for companies that lead the market in customer acquisitions, it is no surprise that these carriers also have difficulty retaining their customers. The opposite profile, in fact, with customers who use live channels such as call centers or agents, are more likely to stick with their current insurance carrier and develop relationships. 

Bain's study concludes that earning loyalty increases retention and leads to better economics. Customers who are promoters and stay longer with a particular carrier will often make more referrals to family, friends and colleagues, and as a result, these promoters are worth almost three times more in their lifetime value than passive customers, and nearly seven times more than detractors. According to Bain's research, greater retention accounts for approximately three-quarters of that added value, making a superior claims experience much more valuable than a system that focuses on simply minimizing complaints.

Insurers that lead in customer loyalty have a similar profile to retention leaders, with older, higher income customers, valuing peace of mind over price. However, loyalty leaders tend to outperform in various dimensions, including price, products an customers' experience of their services and claims. They tend to interact with customers though a variety of channels, including those that are higher touch. 

So what does this mean for carriers? Consumers drive the future of the industry, and by studying consumer behavior, Bain has concluded four practical implications for carriers.

First and foremost, Bain suggests investing on "wowing customers," not merely satisfying them at key moments of truth. Creating promoters is increasingly more valuable than simply avoiding detractors.

Good pricing alone is not sufficient to avoid defection by customers who may be enticed by a lower price. To retain a customer base, it is not sufficient to only deliver great survive, but increase their ability to acquire new customers. "Wow" moments in acquisition, according to Bain, involve convenience, such as responding the same day to a request for a price quote, or perhaps providing proof of insurance through a smartphone.

Improving the overall experience of a customer however, stems from regular customer feedback, allowing carriers to understand what they are doing right and wrong. Looping the feedback to managers, employees and senior executives enables employees to take proactive and targeted action for the improvement of services, and over time, the accumulation of improvements serves to build a powerful and competitive differentiation.

Industry leaders in customer loyalty have taken a number of actions based on customer feedback. In P&C insurance, in particular, claims handling is one area that offers an opportunity to gain customers' trust. For instance, some carriers have developed a network of certified auto repair centers that provide quality repair at a lower cost. Others have presented a myriad of self-service options. For industry leaders, such as Allstate, allowing customers to photograph damages of a minor traffic incidents using its QuickFoto Claim application increases convenience and efficiency for customers and agents.

Bain also proposes that the industry accelerates the shift to an omnichanel experience. Customers in the United States want to be able to use a channel that is convenient, whether it is online, a mobile application, an face-to-face meeting or perhaps a video chat with an agent.

According to the study, the expectation of using any channel pervades all customer segments, regardless of age, income or insurance needs. Furthermore, in the coming years, more and more insurance customers will be digitally active. Promoting multichannel behavior, although it can be complex, can also bring the biggest delight to customers. Multichannel users, according to the survey, tend to buy more products and furthermore, have a greater retention value.

While some insurers have been progressively shifting to fit the necessities of a multichannel world, most carriers are in the early days of implementing integration. Coordination and collaboration across various functions within an organization is incredibly important for success in this area. Working together from underwriting to finance to IT will promote efficiency and functionality in this area.

Refining marketing to be more selective in customer acquisition is something that Bain believes improves acquisition, based on survey results.

Insurers leading in acquisition rely heavily on advertising, and focusing their messages on price, and tend to attract price-sensitive customers. However, attracting price-sensitive customers also will likely generate a higher churn down the road. Carriers will have to continually manage costs down to attract an outsize share of new customers and maintain their market position. Furthermore, there may come a point of diminishing returns from advertising. Therefore, insurers would benefit from exploring options to make direct marketing and advertising more effective now.

For the carriers that focus more on retnetnion, the challenge is in competing in the noisy environment. Focusing ad themes on peace of mind or convenience, for example, supports a higher-touch service and advice, allowing these carriers to compete in the advertising arms race while not going head-to-head on price with their price-sensitive competitors.

Bain also suggest that these carriers become even more discriminating in their marketing by shifting from a broadcast to a narrowcast mode, targeting the most attractive segments. Tailoring marketing once the customer is on board, providing customers with the reassurance that the carrier is engaged with the customer and creating a caring and trusting environment, for example, can be helpful for some demographics. Advanced analytics can help determine the data to match the demographic with their needs, building predictive models that improve the accuracy of matching tailored products to targeted segments.

Regardless of an insurer's advertising approach—whether it is low-cost, convenience or peace of mind narrative—it must deliver on the promise of the ad in order to attract the right customers. Both acquisition and retention can benefit from optimizing marketing to reach target segments more effectively. When marketers know which variables will entice their customers to act, response rates will rise and help return on marketing spending increases.

Finally, Bain suggests that insurers blend product and pricing innovation to retain price-sensitive customers. Price is important for P&C customers, and price comparison tools are becoming more and more common. In order to retain a larger share of new customers, insurers will be prompted to step up their product and pricing innovations so customers have strong reasons to stay with a company, and even buy more products, despite the fact that they may be able to find a lower price somewhere else.

While some innovations lean on price-related features, such as Nationwide's Vanishing Deductible or Allstate's Accident Forgiveness, others stem from advances in digital technologies, particularly in telematics programs.

For P&C insurers, stimulating organic growth involves making a choice between excelling in customer acquisition or retention. While some insurers are performing their competitors in both of these areas, insurers benefit from a dedicated focus on earning a customers' loyalty, which furthermore creates greater retention, cross-selling and referrals.