For many insurance carriers, keeping loyal customers has put them in the industry’s top tier.
Insurance companies will need to implement customer loyalty and retention strategies to survive in the coming years. High churn rates and margin pressure will only get worse for insurers that don’t adopt new ways of thinking about providing exceptional service and building profitable relationships with their clients.
In this blog, we’ll discuss the reasons for the loyalty drop off in the insurance industry and the customer loyalty and retention strategies that providers must adopt to thrive.
Challenges influencing customer loyalty in the Insurance Industry
Spiralling acquisition costs
Insurance carriers continue to battle with customer acquisition and retention as the market becomes more saturated and consumers find it difficult to differentiate between products. The insurance industry has a customer retention rate of 84%, well below the average of 95% seen in other sectors.
Considering that repeat customers contribute over 65% of your profits, a study found that increasing your customer retention rate by 5% can boost your profits by 25% - 95%.
Many insurance carriers, however, still chase customer acquisition rather than focusing on customer retention. Meanwhile, acquiring a new customer is about nine times more expensive for insurance companies than keeping an existing one.
Guidewire revealed that in April 2021, a mere 15% of customers reported having a positive opinion of the products and services offered by their insurance provider.
Brief, transactional interactions
To an extent, this is because customers have brief, transactional interactions with insurance carriers and often feel dissatisfied with the overall experience. However, the truth is that customers often get better deals by shopping for a new provider instead of opting for renewal.
It's easy to understand why. A steep discount is offered to new customers, but the price gradually rises with each renewal, more or less penalising regular customers for their loyalty.
For instance, according to a press release from the Financial Conduct Authority, millions of home and auto policyholders in the United Kingdom stand to lose out if they keep renewing their policies with the same company.
About six million policyholders were overcharged in 2018 just because they kept using the same insurance company. If these loyal customers had paid the market rate for their level of risk, they could have saved over £1.2 billion!
See how this encourages policyholders to look around for better rates rather than sticking with their current provider?
Customers expect more
The current situation has also made insurance customers volatile. 57% of survey participants said they would switch insurers for a better online experience. Brand loyalty has changed a lot because customers want more and the market is getting more competitive.
Still, there's hope to be had for insurance carriers. With modern technological advancements, insurers can interact meaningfully with customers, mine their data for insights, and use those insights to tailor services and create customer loyalty initiatives to keep them satisfied.
Customer Loyalty and Retention strategies in Insurance
Many insurers struggle to build and maintain customer loyalty. For instance,
Only about half of auto insurance policyholders are willing to advocate for their providers, while a third are only somewhat satisfied with their coverage, as found in the J.D.Power auto insurance 2020 report.
Insurers in the UK, in particular, must deal with price comparison sites and aggregators commodifying general insurance and dominating distribution. Granted, price will always be a factor for customers when selecting an insurance provider. However, insurers can lessen the impact of price comparison websites by regaining customers' trust and loyalty.
This of course, only happens if people start to see insurance less as a commodity and more as a service that offer security and real value. To that end, here are several strategies insurance agencies use to improve retention rates and give extra value to customers to make them brand advocates.
1) Leverage personalisation
There's no denying the importance of personalisation when trying to gain brand loyalty. It leverages valuable customer data that insurance carriers can use to tailor their offerings and provide memorable experiences.
The value of customer data and insight goes far beyond just the ability to engage customers with personalised communications; it also supports contextual cover. Insuring an individual requires careful consideration of their unique requirements, as each person's insurance needs are different. Adding a personal touch to the services that you provide can do wonders for brand loyalty.
Concepts like psychographic segmentation (i.e., retirees, students, or first-time homeowners) also helps insurers target specific customer subgroups to create better emotional connections.
2) Be consistent with pricing and value
Customers are happy to pay premiums if they receive value in return. Factors like price, related products, proactive cover, and personalised service are major factors of customers' perceived value.
Always focus on providing consistency in pricing as it's a direct route to customer satisfaction. Customers who are content with their coverage and product knowledge are less likely to shop around for better rates.
Additionally, to foster customer loyalty, ensure your service is worth the cost. This doesn’t mean that insurers have to drastically reduce their price structure.
According to a study, participants' opinions on the reasonableness of premiums were more important than the actual premium amounts. In certain cases, setting prices too low sabotages customer loyalty just as much as setting high prices.
Excessive price swings are generally met with negative reactions from consumers, even when the swing is in the direction of a price decrease (often interpreted as a loss of value).
3) Invest in reward programmes
As the insurance industry becomes increasingly competitive, reward programmes provide a competitive edge for insurers. These incentives, which take many forms, encourage customers to engage more frequently with their insurance provider. Customers are more likely to spend more or opt for higher premiums if your reward programmes are well-designed and engaging.
Insurers accomplish two goals with the help of reward programmes: first, they foster risk-averse habits, and second they strengthen relationships and thereby loyalty with existing customers.
This works by rewarding behaviours like responsible driving, healthy eating, and avoiding risky activities. Vitality Insurance, by way of its “Healthy Living Discounts and Good Driving Programme," is a great example of this.
Customers earn points in the loyalty programme by connecting their activity trackers to Vitality. In general, the more points you earn, the better the rewards you'll receive. There could be discounts on Apple Watches and Fitbits, as well as on hotel stays booked through Expedia.
Insurers can take baby steps like these by having their procurement and legal departments form informal alliances with businesses that offer complementary services, such as fitness centres. This would help them deliver value more quickly and make redemption less cumbersome.
With its reward programme, Vitality is actively lowering the risk associated with each policyholder, while providing excellent value to customers and helping to retain them for the long haul.
Vitality's model is a great example to follow. By providing customers with a compelling incentive to maintain their brand loyalty and collecting information (via fitness devices) that will be used to tailor their experience, Vitality attracts and retains a steady stream of repeat business.
4) Expand Offerings
You should also consider how to reinvent or diversify your products and services to win back the loyalty of your customers. The solution lies in the development of an ecosystem that supports customers and evolves with them as their needs change.
For insurers to thrive, they need to diversify their product lines to include complementary services that sit outside of traditional insurance. Life insurance policyholders gain additional value from health monitoring. Think about adding more personalised services that are tailored to the customer's preferences, as well as multi-policy discount rewards, to your packages.
Even better, insurance companies that work with relevant partners and offer complimentary products can expand their access to valuable customer data. This enables the provision of insurance that adapts in real-time to the changing needs of the customers.
How to build Customer Loyalty in Insurance Sub-Sectors
Implementing a loyalty programme that rewards customers for renewing their policies with the same insurer is an excellent way to increase customer loyalty. By showing customers that their loyalty is appreciated, loyalty programmes dissuade customers from seeking new providers.
Let’s discuss the best ways to foster customer loyalty in insurance sub-sectors using the power of reward programmes.
The percentage of auto insurance policyholders who say they will surely renew their policy with their current insurer has dropped from 59% in 2004 to 48% in 2019. Consumer premiums also dropped in early 2022, but predictions for 2023 indicate that rates may increase by 18% due to inflation.
Price changes of this magnitude are a major motivator for consumers to shop. Offering relevant, valuable rewards via a robust loyalty programme is an excellent way to ensure that even when buyers consider other options and look to switch carriers, your brand still stands out.
Allstate, a major provider of auto insurance, is a great example of this. They run two telematics programmes—Milewise and Drivewise—to track and analyse motorist habits. Every six months, users receive reward points based on safe driving habits, including low speeds, number of stops, and total mileage. Those points can be redeemed for discounts on a variety of items and experiences, including trips, gift cards, and name-brand goods.
Accident forgiveness benefits are another form of incentive offered by auto insurers. Typically, you can expect a rise in premiums after an accident has occurred. However, participants in an accident forgiveness programme who have a history of safe driving will not see an increase in their premiums in such cases.
Belairdirect is an example of an insurance provider offering this programme to its customers. However, to participate in their programme, you must first have seven years of non-fault claims.
Homeowners have access to safety systems with the help of smart home products such as water shut-off valves, connected leak detectors, motion sensors, smoke alarms, and smart locks.
Installing even a single smart device—whether for safety, health, or convenience—could significantly lower the risk profile of many insurance policyholders. This means insurers can provide additional value by rewarding their customers for embracing safety-conscious behaviour.
In addition, carriers provide tailored service options for policyholders who opt to share their smart home data. All this significantly improves brand loyalty for your business.
More than 80% of customers, according to Baines and Company, are receptive to an ecosystem of services, and many would even rather have them provided by their insurer. Discounts have also been shown in other consumer reports to be an attractive incentive for consumers shopping for new insurance providers.
If you want to see how additional services and preventative measures add value beyond insurance policies, look no further than the UK's John Lewis. With their Home Assurance package, you get home insurance as well as 24/7 emergency response, smart devices, the Home Assurance App, and gas and electric inspections.
These add-ons encourage safe behaviour among policyholders and give them yet another reason to stick with John Lewis.
Many insurance companies also now offer discounts on homeowner's policies to customers who meet certain criteria, such as age, the number of safety and security features in their homes, and the number of years in which they have been insured.
StateFarm, for instance, lowers the rate they charge for home insurance for those who have multiple policies with them. Insurance premiums for homes equipped with security systems like smoke detectors, burglar alarms, and even video surveillance systems are also discounted to keep customers happy.
Unlike other insurance sectors, health insurance is not something that people actively seek out. This makes it much harder for health insurance companies to win over customers. So it comes as no shock that 26% of people with health insurance surveyed by Accenture said they felt no loyalty toward their insurer.
The health insurance CPI (Consumer Price Index) has increased steadily over the past decade, reaching a high point of 121 in 2019. The rising CPI shows a consistent rise in the cost of medical coverage. Over 11 years (2008 - 2019), the cost of health insurance rose by an average of 6% annually.
As a result, health insurance companies must work hard to prove their worth to customers. To achieve this, many service providers still prefer to use a loyalty programme that financially rewards customers for their continued patronage.
A health insurance loyalty programme, however, requires more than simply rewarding customers for making purchases. If you're a shopper looking for food, a "buy two, get one free" deal might be appealing. If you're looking for a healthcare insurer, what you really want is better health outcomes.
Oscar is an excellent example of a health insurance provider that actively rewards its members. Policyholders can access a concierge team of doctors and other medical experts through their digital platform. An app-based health insurance advice team is also available at all times.
Therefore, it's worth creating loyalty programmes that promote healthy habits. This way, health insurance providers benefit in two ways: when members' health improves that increases satisfaction and thereby loyalty. Plus, it lowers their monthly healthcare costs.
Predictions indicate that inbound tourism to the United Kingdom will reach 35 million in 2023 (over 18% more than in 2022), with an increase in spending to reach £29 billion (14% more than in 2022).The projection is based on the assumption that inflation will decrease from its current state along with forecasts, but it may still be above the normal level come 2023, putting a strain on the purchasing power of tourists.
Uncertainty persists about whether reduced high inflation will stimulate spending. higher inflation effects travel because it directly influences booking rates and spending behaviours of tourists.
This is why loyalty programmes in the travel industry are not an afterthought but a crucial weapon in the battle to keep customers. They are developed, tested, and promoted with great care to entice and retain customers by offering tempting bonuses and benefits.
For example, as part of a larger customer retention and acquisition scheme, Staysure, a UK-based travel insurance specialist for those aged 50 and above, launched a referral marketing campaign. The referral programme was implemented because of the overwhelmingly positive feedback and loyalty they were getting from their customers.
Staysure's referral programme enabled the company to reward its most dedicated customers while also extending an invitation to their friends. You can increase customer loyalty and encourage other forms of engagement, like social media sharing, by doing this. As of 2021, 52% of consumers made travel plans based on images or videos they saw posted on social media by friends and family (an improvement from 43% reported in 2017).
Retention is the key to Success
Insurers have achieved positive results in customer loyalty and retention using the power of reward programmes. However, keep in mind that loyalty is not something that can be gained overnight. It’s a sustained effort where you build trust and support every day.
Over the coming years, there needs to be a shift toward a new method of flexible pricing that is underpinned by real-time risk data. Insurance companies who balance excellent service history with a modern customer experience will increase their market share. Because it’s creative approaches like reward programmes that make brands stand out.
Join us again in our next blog where we discuss customer loyalty in other financial services.