Davids Challenge Goliaths: Using Marketing Analytics to Pursue Niche Insurance Markets

[In the second article of this four-part series, Cognizant's Michael Kim and Agil Francis discuss how marketing analytics can provide a platform for CMOs and CIOs to work collaboratively: How Insurers Can Bridge the Divide Between IT and Marketing]

The majority of consumers will likely go to the low-cost provider and the most recognizable brands. In most industries, there's a dominant low-price provider, a brand that consolidates the marketplace and dominates market share. The same is very likely to happen in insurance, where a few low-cost providers will consolidate a significant share of the personal lines market.

Auto and home insurance brands have been competing over price during the last decade. As this finishes playing out over the next decade, there will be definite winners and losers. The trend is definitely toward a few companies grabbing significant share of the market, offering fewer and undifferentiated products as well as services at lower prices. There's no easy way to break this cycle of consolidation, but there remains a substantial minority share of the insurance market that can be expanded by offering differentiated products and services.

Agil Francis, Cognizant

Indeed, some companies are taking a more granular approach to product development that will result in a more targeted set of products. Marketing analytics can help these companies not only find the right customers, but determine what products they want and are willing to pay a premium for. Outside of the big-brand market, there is definitely room for differentiated services. There will always be some people who want specialty services -- say, quicker claims settlement or more sensitive claims response -- and are willing to pay for it. This market for differentiated insurance products and services is analogous to the niche market in retail. How can these customers be reached?

There are two main ways to differentiate in insurance -- first around service, and secondly, around product.

[Insurers must rethink differentiation in a digital world: What Insurers Can Learn from Blockbuster's Demise]

Let's think for a moment about the role of service. Efficacious insurance is what guarantees peace of mind that you will receive money to recover your losses. Service will determine the quality of your experience. Suppose, for example, that in a freak windstorm, a tree falls and damages your roof. Your insurance carrier sends someone out to estimate the damages. That is a given. Now imagine that the insurance estimator goes further, and recommends a specific roofer for you to contact -- a contractor who has been vetted by the insurance company and is known to supply great work and the right quality of roofing materials. The estimator takes out his phone and sets up an appointment for you with this contractor. The better the service, the less you have to do. From the standpoint of customer experience, beyond the product itself, it's the service that creates a positive feeling, and leads to beneficial customer feedback on social media channels -- part of the holy grail of marketing these days, across all industries.

Michael Kim, Cognizant

The second way to differentiate an insurance product and add value for which you can charge a higher premium is to make a product look different from the competition. Marketing analytics can help strategize what gaps exist in the market, and suggest how to fill those gaps with new variants of products that people would want to buy. Let's look at the basics: You have got products that cover your home and your car. Let's extend that out. We all know that identity theft is an issue. Suppose there were a brand new insurance product, folded into your homeowners insurance that covers you for legal expenses and other out-of-pocket inconveniences when you've been the victim of identity theft. Or suppose there is a geographic segment that has a clear and relevant need -- let's take Florida in hurricane season -- a risk that can be differentiated for customers in that region to buy specialized insurance.

How Can Marketing Analytics Help?

Finding specific coverages most likely needed for a consumer segment is a way insurance companies can begin to fill in the product gaps. Looking at a set of attributes -- where you live, who you are, and so on -- might point to how several new products can be developed. Consumer behaviors are another. And oftentimes, demographics are too blunt a tool to make the distinction. For example, in the auto insurance industry, there may be some behavioral similarities between a 40-year-old male and a 20-year-old female, albeit they belong to different demographic groups.

Marketing analytics helps identify those variables, providing a view into what those niche segments are -- the types of people who want differentiated products and services in the first place, and what they need in these new value-added products and services. The value of marketing analytics is found in the efficiency with which you can spend marketing dollars. Better data in real time shortens the development time for these products and services, and can be used to figure out how your promotions and messages can be geared toward differentiated products and services.

While differentiated brands may not lead to a much greater market share, they could mean a significant bottom-line improvement -- a niche market focus could generate twice the margin of the lower-priced product. By harnessing the power of information through marketing analytics, more specialized insurance companies can figure out not only what differentiated product and service to offer, but which geographic and other micro-segments to target these offers to. It is a big world, and there is room for a lot of Davids to compete right up there with the Goliaths.

Michael Kim is Vice President, Insurance Consulting, and Agil Francis is Senior Manager, Insurance Consulting, at Cognizant.