As a consumer, I am getting used to a more individualized experience. These experiences are often driven by ‘loyalty’ cards that trade ‘points’ for my personal information, habits, etc. It seems worth it, and I understand the value to both sides. It makes sense. Applying that experience to insurance also makes sense – loyalty (a.k.a. retention) is a key metric for insurers. The problem is, I don’t often see the value to me as the policyholder. Sure, there are discounts that can be applied, but that suggests that this is solely a cost-based relationship… and I don’t believe that is a desirable objective for an insurer!
One question to consider is, what does the market want and how do insurers deliver to that expectation? First, there needs to be an understanding of the customer (I believe this can be applied to both personal and commercial business). ‘Big data’ provides the opportunity to better identify with customers, but that is just the start. This data needs to be applicable in a way that enables an insurer to understand the needs of the consumer within a specific context – shopping mode, buying mode, using mode, assessing mode, etc. More specifically, these translate to marketing, quoting, servicing, and renewing.
The next step is determining the customer segments themselves - the boxes to build, so to speak. This is the most challenging aspect of the initiative and one that must continue to be an ongoing process. Understanding the preferred methods of communication style and channel (these may be different based on the mode), the risk and coverage needs (an evolving relationship), and the desired level of engagement (high-touch, insurer-driven that may extend beyond insurance to hands-off self-service) are all possible criteria that can be used to segment a market. More traditional methods based on region, profession, age, etc. also contribute to the opportunities to segment, but the influx of more data, especially around habits, can drive even further granularity.
In general, I believe it is better to start with a broader scope when it comes to segmentation versus narrower and build experience that will guide the refinement. Being too restrictive or missing the mark can have the reverse effect and confine or alienate a customer. However, getting it right will translate to a higher value proposition for the policyholder and better retention for the insurer. If the box is the right size, it’s a gift for both sides.