09:30 AM

Fight Insurance Price Sensitivity With Social Interactions

Some insurers are shifting to a focus on the quality of the customers and their longer-term spending power.

Loyalty is very rarely rewarded -- especially in the financial services industry, where more products are becoming increasingly commoditized and customers are becoming more finicky. The average customer who has been with the same bank for more than 20 years gets the same treatment as a new customer when it comes to overdraft charges. A customer with the same insurance carrier for the same amount of time may see her premiums raised due to a claim or changes in her lifecycle.

There’s very little incentive to reward loyalty; as customers age, the likelihood of paying out a claim on a policy increases, making that customer less profitable. In other industries, after introductory rates for a set period of time are offered -- for example, in Internet services -- the rate rises, and newer, more attractive offers are reserved for new customers only. The current focus is primarily on new customer acquisition, not customer retention or cross selling or building advocacy.

Across industries, customer loyalty is key to driving profit and growth. Finding loyal customers drives companies to focus on existing customers for retention, which can lead to a greater customer lifetime value. Insurers, however, are still very much focused on attracting new customers. The more than $4 billion spent on insurance advertising by US insurers is a battle for market share that is very much focused on getting customers to switch their carriers. It is, at a very basic level, a quantity vs. quality approach. 

Some insurers are beginning to shift their focus from new customer acquisition to retention and improved cross-selling. They are spending less on traditional advertising and shifting investments to improving their presence in digital touch points. It is a shift to focus on the quality of the customers and their longer-term spending power. A customer with multiple products is less likely to leave than one with a single product, especially in auto insurance. A customer who is happy and engages with a company is more likely to recommend that brand to others.

[Previously from Hutson: There's No Need to Separate Direct and Agent Insurance Sales.]

Over the past three years, the industry has seen an increase in online insurance aggregators, which are growing in popularity with more price-sensitive and less loyal customers. There, customers will likely take the cheapest quote found within the first few top results. Because aggregators depend on high volumes of transactions in order to be profitable, the model is still a quantity approach. The model has its place, especially for that subset of customers that will continue to make their decisions based on price.

For insurers that want to focus on quality to retain more profitable customers, there are emerging models to consider in customer retention and recognizing customer profitability. One approach is to focus on building customer advocates through social touch points. As customers rely more on peers for purchase recommendations, it becomes very important to make sure that companies build a community of brand advocates. This is very different than influencers, which has been a major focus for social channels in the past.

As social strategist Jay Baer explains in his blog entry, "Why Online Influencer Outreach Is Overrated and How to Fix It," influencers are more about raising awareness, whereas advocates are “driven by the depth of conviction” meaning they truly believe and stand behind the brand and will likely recommend it to others. Many companies have successfully created brand advocates: USAA in the insurance industry, Warby Parker for eyewear, Nike for running gear.  

Customer engagement and brand advocacy go hand-in-hand, and it is difficult to achieve in an industry where interactions are limited. For insurers, to improve advocacy here are a few things to consider:

  1. Brand advocacy isn’t limited to the policyholder. Agents and employees can also be brand advocates. Do you have the right social business tools in place to enable them to engage with customers digitally?
  2. New approaches to product recommendations are emerging, for example, social empathy selling. Social empathy selling says, “Customers like you bought the following..." When customers come to an insurance website for a quote, using social media analytics, can they see recommendations based on their social DNA?  
  3. Is your social presence mature enough to incorporate the benefits of aggregators with the benefits of social?

It is important, however, to consider the privacy issues, compliance implications, and “the creep factor” that comes with incorporating social engagement into customer interactions. So tread carefully, with a goal of demonstrating value.

[Join the Women in Technology Panel & Luncheon at Interop on Wednesday, October 1. How different are IT career paths and opportunities for men and women in 2014? Join your peers for an open forum discussing how to advance in an IT organization, keep your skills sharp, and build a mentoring network].

Kathy Hutson is Global Insurance Front Office Segment Leader for IBM Global Insurance, specializing in technology solutions that help insurers develop compelling customer experiences and winning distribution strategies. She has more than 14 years of experience in the ... View Full Bio

Register for Insurance & Technology Newsletters