Tag Archives: discounts

How to Build Customer Loyalty in Insurance

Always the same story: 11 months after a costly customer acquisition, crafty price comparison players and other intermediaries helpfully knock on the customer’s door, show a smorgasbord of supposedly better value options and outline how easy it is to switch.

For example, 16% of Americans shop around for car insurance every year, saving up to 47% of the previous year’s insurance cost. This represents an impact of up to $40 billion on the $500 billion car insurance market.

What’s great for the consumer is a major headache for the insurance provider, which often has to join in the dreaded price war to keep a customer.

In many other industries, having a good brand is a bulwark against a price race to the bottom. But for immaterial and low-involvement products such as insurance, this is easier said than done. It’s hard to stand out in the customer’s mind and become a provider of choice.

But there are a few things insurance providers can do to survive the first-year itch and give the customer an experience that will greatly increase the odds that they’ll stick around for another year.

Before we get into the specifics, it’s important to understand one key principle of loyalty, which is best illustrated by Maya Angelou’s famous quote:

“People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

That’s why discounts don’t lead to loyalty. Sure, it’s sweet to get a $150 bonus for staying with your current life insurance provider, but once the money hits the bank account it just dissolves into the family budget, never to be seen again. It’s not memorable, and it sure as heck doesn’t make the recipient feel much of anything.

Contrast that with what you could actually DO with $150:

What if you gave your customers an experience such as a kayaking tour or a candle light dinner for two? The cost would still be some $150, which is close to what a bonus or discount would amount to — but the effect is far stronger.

Why?

Because the customer associates the experience with you. In the back of their minds, they know, as they’re tucking into their entree or dipping their oar into the turquoise waters, that this experience comes courtesy of Insurance Co. And that association works on a subconscious basis and lasts far longer than any discount could.

You may argue: Why wouldn’t customers be able to do it themselves with the $150 check they received from you? After all, they just received a discount of $150, so you might as well encourage them to spend it on that kayak tour, right? All without going through the hassle of organizing it on your end.

Not really. Most people don’t operate that rationally, and hardly anyone would take a windfall gain and spend it on something specific. It’s more restrictive to give them $150 in kayak or dinner vouchers, but that restriction means that they are far more likely to use it. And you WANT them to use it.

See also: What Really Matters in Customer Experience

The effect is obviously not limited to dinner experiences, although that one is quite the front runner when it comes to a memorable experience at an affordable price.

Other perks that suit an insurance company’s first-year-itch-avoidance budget would be:

  • A luxury case of wine
  • Two tickets to a rock concert or musical of the customer’s choice
  • An afternoon at the local spa
  • A cooking class
  • VIP cinema tickets for the entire family (customize it by asking them how many tickets they want and providing any number of them — within reason)

It’s important that the item or experience you provide be non-utilitarian. A new vacuum cleaner or blender won’t do the job as well as a cheese and wine tasting night out. To be a memorable experience, it needs to be non-quotidian and give a hint of luxury or, dare I say, décadence. Yes. French spelling.

So how much can it cost?

Well, that depends on how much you can afford. If you, with a heavy heart, normally provide a discount of $150 to keep a customer with itchy feet, providing an experience worth $150 is the starting point.

More bang for your buck through breakage and volume discounts

But that $150 can go a much longer way and you’ll be able to magically turn it into $200 or more in the following way:

First of all, if you do this at scale, you’ll be able to secure discount rates from the vendors. A restaurant chain will gladly give you a discount if you buy 100 candlelight dinners from them.

Second, there’s breakage. We’ve written extensively about the concept — in short, breakage is the rate of unredeemed dinner experiences (if we can stay with the dinner example). Some people will end up not redeeming their gifts. How should you deal with this, though?

On the one hand, if you want to focus on short-term profit, this is good for you, because the user has accepted to stay with you for another year without creating any cost — because they haven’t redeemed, you can now use their voucher for someone else.

On the other hand, if you are focusing on brand building and are willing to forgo the short-term profit for long-term customer loyalty, nudge customers toward redeeming, so that they can indeed build that positive association of their experience with you.

Whichever route you choose to take, industrywide breakage rates are around 30% and, even if you nudge people toward redeeming, are unlikely to drop below 5%, so make sure you are including this in your calculations.

See also: It’s All About the Customer Journey

And the results?

Our clients experience an average 15% reduction in customer churn by offering personalized gift cards to their customers.

For more on how to boost loyalty and retention among subscription customers, read our brand-new ebook, “The Ultimate Guide to Loyalty and Retention.”

The key message is: Stand out. Provide an experience. Do what others don’t. Give the customer a positive feeling for staying with you, even if you are not the cheapest option on the market.

Here’s to the end of the first-year itch!

Telematics, Big Data in Car Policies

Once upon a time, an insurance COO was walking along a beach, deep in thought. His CEO had just asked him to increase the motor business. The COO was in a sweat, knowing that he could quickly increase sales by dropping premium rates and excesses, but that claims would also follow. The loss ratio was already 103 – a marketing push like that would certainly throw them further over the edge! On he walked.

As he strolled, deep in thought, he came across a strange glowing bottle, rolling back and forth in the surf as waves gently lapped on the beach. He picked up the bottle and marveled at its exquisite beauty, yet simple design. Wondering what on earth could be inside such a work of art, he pulled off the cap. Suddenly, purple smoke erupted from the opening, which gradually took the form of a smiling genie.

“Who the heck are you?” the stunned COO asked.

“I am the career genie. I grant three wishes that help people along with their jobs,” the genie replied.

“OK,” the COO thought, “let’s test this guy out.” He said, “Genie, for my first wish, I would like safe drivers to buy my motor insurance product.”

The genie crossed his arms and blinked. “It’s done,” he said with a smile. “Safe drivers will actively choose your insurance product over those of your competitors.”

“Amazing!” the COO thought. “OK, genie, for my next wish, I want to find a way to charge more premium for dangerous drivers before they have an accident.”

Again, the genie crossed his arms and blinked. “Your wish is my command. Poor drivers will automatically get smaller discounts. You will know how well your policy holders drive as they drive. In fact, you will be able to coach them to be better drivers as they go. Bad drivers won’t like the net premium you charge and will move to your competitors.”

“Awesome!!” the COO thought. “OK, genie, for my last wish, I want you to reduce claims and fraud — make my motor line of business really profitable.” Once again, the genie crossed his arms and blinked. “Your wish is granted. Claims will drop by at least 20%, and fraudsters will find my magic accident reconstruction technology difficult to overcome and will move to easier pickings with your competitors.”

The insurance COO was dumbfounded. He stammered: “Oh great career genie, what is your name?” The genie replied, “Some know me as UBI the Amazing; others know me as Telematics the Fantastic. I am a magical creature who simply likes to help mortals such as you to find better ways to do business. I hope your wishes work out for you.”

In a flash, the genie disappeared, and the COO was left alone, with his loss ratio sitting at 80, his customer renewal rate at 96% and his customer satisfaction going through the roof. Happily, he headed back to the office, ready to recommend a brisk beach walk to all the other senior executives.

Yes, this story is a fiction, but the results are very real.

Usage-based insurance (UBI) is fast becoming a mainstream game-changing offering for general insurers in the U.S., Europe and elsewhere directly because of the outstanding results it delivers for insurers and customers.

The first truly successful UBI program was Progressive in the U.S. with its patented Snapshot technology that was introduced in 2010. As of the end of 2013, the program has achieved more than US$1.5 billion in annual premiums, with nearly 35% of motor customers having signed up.

Customers are given discounts of as much as 30% by opting into the program. Snapshot works through a device linked to the vehicle’s On Board Diagnostic Interface (OBDI), which captures the distance driven, braking force and the time of journey and transmits the journey data back to the insurer, enabling the calculation of premium discount. Progressive continues to enhance Snapshot and is currently planning to add GPS location data.

A number of other large U.S. P&C insurers have become fast followers, most notably Allstate with Drivewise, State Farm with Drive Safe and Save, plus another 10 carriers with similar programs.

In Europe, some legislation has stepped in to help drive UBI adoption. In the past, some premium rating factors discriminated based on gender, with young males paying more premium than young females.

This practice is now banned under EU regulations and has spurred one UBI program called “Drive like a girl,” which combines a clever social media pitch to promote safe driving habits in young drivers while premium discounts are calculated in a gender-neutral fashion, based purely on how the insured drives.

A recent study shows UBI programs in the UK, Ireland, France, Germany, Spain, Italy, Belgium, Netherlands, Denmark, Finland and Sweden involving considerably more than 50 insurers. It also estimates the global policy count to be more than 5 million as of mid-2013.

Here in Asia, I am aware of established UBI programs in Japan, China and Australia.

The UBI genie is out of the bottle, and more and more markets are catching on. The value proposition is really game-changing:

• Safe drivers will tend to opt in to UBI programs as they believe they will get a better deal and be rewarded for their superior driving skills;
• Poor drivers will migrate away simply based on price, if they can get a cheaper base deal;
• Overall, the UBI approach appeals to people’s common sense – you drive less, you pay less; you drive more, you pay more – you pay for what you use;
• Driver behavior/style is monitored, and, where UBI provides feed-back, drivers tend to drive more safely;
• UBI programs are statistically proven to reduce claims, and in some instances have achieved 30% reductions – this has the biggest impact on insurers’ bottom lines where typically motor makes up 65% of the portfolio and claims make up 70% of expenses;
• Claims are much more difficult to stage, because the UBI device records much of the vehicle’s performance data and geo-location data. When UBI is coupled with dashcams, accidents are easy to reconstruct, thereby chasing away fraudsters to competitors;
• Because UBI provides rich data and customer engagement, claims can be settled faster, thereby improving customer satisfaction; and
• Because the pricing is dynamic based on how you drive, it becomes more difficult for customers to do an apples-to-apples comparison between different insurance providers policies when shopping around.

In the past, you bought your policy, tucked the schedule in the glove compartment and forgot about it until you had a claim, at which time your insurer became your adversary. With the UBI model, your insurer is right there in the vehicle with you on every journey, telling you when you brake too hard, alerting you when you accelerate too quickly, letting you know when you are swerving and swapping lanes too much. Your insurer is engaging with you – partnering with you to avoid accidents, and to be a better, more efficient driver.

This is a perfect platform for introducing value-added services. The UBI program is serving up a great data set from which the insurer can potentially craft personalized services with relevance to each individual driver.

Ideally, the value created will entice the insured to share even more data from which further services can be fashioned. With UBI customers focused on value, it becomes much more difficult for other insurers to compete simply on price. Policy retention rates and customer satisfaction will naturally increase.

It is clear that insurers in the region are starting to look at UBI. The rewards are immense for those that adopt this game-changing approach. Do not wait to stumble over your own genie on the beach. Do your career and your customers a big favor by checking out this new approach to motor insurance. After all, if you don’t, your competitors certainly will.

The $22 Billion of Auto Premiums That Will Disappear

Many drivers are angry. They only drive a little but don’t save a lot on their auto insurance.

When customers get angry, they start to shop. And when low-mile customers start to shop, they will soon find companies offering new, risk-based policies that reward them with low prices in return for their smaller exposure to claims.

That shift will take an awful lot of profitable business away from their current insurance companies. By my count, the total could be $22 billion a year in premiums.

The math goes like this:

About 25% of vehicles are driven less than 6,000 miles a year — about half the 12,000 to 13,000 miles that are assumed as the default when insurers calculate premiums. Roughly 30% of vehicles may be considered “low milers,” at less than 8,000 miles a year. If the owners of these cars earned the sort of discount they deserve, (an average of about 30%) then at scale close to $22 billion in premiums would evaporate if nothing else happened.

FreshMiles-consumer2-miles-graph1

The premiums won’t disappear right away. For now, California is the only state that mandates the use of mileage in setting premiums. Most companies doing business there use a hodgepodge of miles bands and a tinkling of rate adjustments from low miles to higher miles. The most sophisticated insurer uses dozens of bands with a 500-mile increment. Premium discounts go as low as 50%, with a roughly 2% incline from 500 to 25,000 miles.

But the trend toward usage-based pricing has to pick up steam, both because it’s possible to measure miles driven very precisely and because so many people are overpaying.

Practically every retiree in America drives less than when she worked. If you go out and look for a used car (use Google — save some gas), you can find many a 15-year-old car with less than 75,000 miles, or five-year-old cars with less than 30,000 miles. Even if an owner of one of those 15-year-old cars received a 30% discount for low miles, he paid for 15 years and only used 10 years’ worth of insurance.

There are sure to be many counterpoints to the simple argument being made here, but all of the readers who are honest know someone who does not drive much, but who pays the full default rate like everyone else.

Let the shopping and savings begin.