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.

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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

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User Rank: Apprentice
10/1/2014 | 11:44:03 AM
Re: Fight Insurance Price Sensitivity With Social Interactions
I think what was most interesting for me was the point that brand advocacy as a broad community effort is more important for acquisition than for retention. There would obviously be a residual positive effect from good social interactions on retention for customers on the fence; but the customers most likely to be directly impacted are prospects who would have a perception but not necessarily a fully formed opinion, which could be favorably improved through social brand advocacy.

Further, I suggest that if you treat the perpetual price-sensitive customers as persons that are unlikely to be loyal, then it would be a fair position to treat them as if they are customers who are always in a cycle of re-acquisition; since they are going to rate shop every renewal.

Finally, I can see where building a community of brand advocates is so important going forward even to the exent that carriers might want to support creation of a community within a social network for it. Which makes me think that to tactically help eliminate the creepy factor a carrier would want to have social media log-ins for rate quotes. Especially since persons on social networks are becoming if not already accustomed to social empathy advertising; recommending products based upon their social profile information is almost an expectation of digital customers. Then carriers could include links out to the monitored brand advocacy community in the quote; and it could be entirely appropriate way to help improve the issuance success rate by connecting passionate advocates to potential customers early on in the process.
Kathy Hutson
Kathy Hutson,
User Rank: Author
9/30/2014 | 8:21:23 PM
Re: Fight Insurance Price Sensitivity With Social Interactions
Interesting points Shyam.

It is well documented, at least for mature markets like the U.S. that the majority of the ad spend that I mentioned in the article has been focused primarily on the customers who switch every year, the ones who are indeed price sensistive and not very loyal. The over $1 billion spent by one insurer in the U.S. on their advertising is arguably to "attract" those customers who switch every year. not to retain customers. The most expensive ad search word on Google is "Insurance" which, the last I check, was around $45-again is that level of investment focused on retaining existing customers? Cross-sell/Up sell rates remain quite low and customers tend to have around 1.2 policies per insurer, so they still spread their business across a number of insurers-especially in mature markets. Most customers do stay with their existing carrier, but the question is how much of that is due to customer behavior (fail to shop around, elasticity of demand for insurance) vs deliberate actions by the insurer?


Becca L
Becca L,
User Rank: Author
9/30/2014 | 7:40:29 PM
The right person with the right message
Interesting article! To your point, there's so much to worry about in online interactions such as the fine line between a smooth pitch and overselling, and particularly the creep factor (just because we can accurately target customers, should we?)

I think your 3 points are important to keep in mind. Particularly the first, which is putting the advocacy powers in the hands of those who can articulate the brand best.
Greg MacSweeney
Greg MacSweeney,
User Rank: Author
9/24/2014 | 10:26:36 AM
Re: Fight Insurance Price Sensitivity With Social Interactions
Yes, insurers and most financial services firms are looking for ways to increase retention and reduce churn. Advanced analytics is helping firms do that in many different channels.
User Rank: Apprentice
9/23/2014 | 12:36:17 AM
Fight Insurance Price Sensitivity With Social Interactions
Any one with vast experience in Insurance Industry tend to disagree with the comment "The current focus is primarily on new customer acquisition, not customer retention or cross selling or building advocacy". Since ages, the primary focus for  Insurers accross the globe, is to try and retain their existing customers , since they know pretty well that "It will cost them three to four times to acquire a new customer, rather than retaining an existing one".

Accordinlgy many insurers are leveraging advanced analytics to identify those customers who are likely to shift their loyalities and take appropriate measures to retain them. Most of the insurers are also leveraging analytics to identify opportunities to cross sell / upsell to their existing customers.

I know of some insurers who already have classified their customers into various categories (Premium customers, Normal customers etc.,) based on a set of pre-defined rules and offer different rates and conditions to them. The underlying objective is to retain their customers who are profitable.
Nathan Golia
Nathan Golia,
User Rank: Author
9/16/2014 | 2:02:58 PM
New perspective
We all know that when we sign up for  cable, our introductory rate is just that, and many people take their percentage point increases in insurance premium every year with a smile. But you are right that firms are betting that we'll stick around due to inertia. With telecoms, the lack of competition in a given region is a major barrier. But insurance — we all know — is not that. Insurers will have to add value to their customer relationships commensurate with the extra revenue they ask of them as switching becomes easier and tempting.
User Rank: Author
9/16/2014 | 12:26:47 PM
Quality over quantity
Interesting article, Kathy-ann. At a time when customer loyalty is decreasing, insurers would be smart to invest more time and effort in engaging with current customers, building loyalty and seeking cross-sell opportunities. I also think it's important that you brought up "the creep factor" that so often comes up with customer engagement online. Social media is a great way to engage with consumers and offer products they might like, but businesses have to ensure they're not being overbearing or annoying for fear of scaring that customer away. 
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