Sales has historically been a business of relationship-building, learning about your shoppers’ challenges and needs, and using the right combination of products and messaging to make them customers. Selling on price alone is not preferred, as customers are less loyal to your brand and more likely to switch providers if they find a better deal.
In insurance, particularly property and casualty, product commoditization has become an issue as customers increasingly point to price as the reason they choose an insurer. And, as a growing number of sales are happening online, for simple products as well as those that have historically been too expensive or complex to bind digitally, insurers and agents face a dilemma.
Digitization can't be undone, but how can relatively consistent products, such as auto and homeowners insurance, be sold in a way that builds customer loyalty and maintains profitability?
The effects of technological developments have long been seen in auto insurance, where the proportion of policies purchased entirely directly has grown to 30%, according to a McKinsey industry survey. Products that are more expensive and complex have been somewhat shielded from this trend, but a growing number of “insurtech” startups and improvements in digitization have begun to change what can be done and what consumers are comfortable purchasing online.
Homeowners insurance, for instance, costs an average of $1,083 per year, and its purchase requires a significantly larger amount of information from a shopper, such as details of a home's structure and additions. Correspondingly, online purchasing has lagged behind auto insurance, with just 6% of purchases being direct in 2011 as compared to 27% for auto. Now startups like Lemonade (a Value Penguin partner) and Hippo are using technology to simplify the process. One way they do this is by automatically filling in home details based on your address, similar to early features seen when auto insurance quoting began to move online.
And small-business insurance, long seen as too complex to go entirely digital, is beginning to see direct adoption as well. Insurtechs such as Next Insurance are removing complexity barriers by targeting groups of shoppers with highly consistent risk profiles, such as personal trainers.
The battle isn't lost for insurers and agents — a McKinsey survey showed that brand strength and creating a personal relationship are still two of the greatest differentiators for customers. While an increasing number of customers have gone the entirely digital route, the majority continue to use agents for the final product purchase. In addition, 46% work with agents post-purchase when they have questions or need services related to their policies.
Insurance has relatively few touch points, so maximizing the "personal touch" in each interaction can be incredibly important to building customer loyalty, something that can be done at all levels. Some insurers, for example, have begun to use phone number and voice recognition to immediately pull up information related to a client, without needing to ask their name and policy numbers at the beginning of each call. This reduces a client's hassles and shapes a more positive view of interactions with your company.
Given touch points are relatively limited in insurance, a newer approach to increasing customer loyalty has involved increasing touch points and offering a wider set of interconnected services. According to a Bain report, customers favor this "ecosystem" approach so strongly they would be willing to pay higher premiums or even switch insurers if another offered the right services.
Depending on your product and target customers, the right ecosystem to build will vary, but homeowners insurance companies are some of the first to test the waters. By partnering with startups that offer remote home monitoring or security products, and providing discounts to those customers that use them, insurers get multiple advantages.
First, they meet the customer's desire for an ecosystem solution and provide a discount, both positive consumer experiences. In addition, by focusing on ecosystem solutions that reduce risks, such as notifying a client and authority immediately about a break-in, insurers may be able to reduce claim frequency and severity. Finally, customers with physical solutions integrated into their homes or businesses have greater barriers to switching if they want to maintain the discounts or other ecosystem benefits provided.
By combining highly personalized touch points, adjusting products to better fit clients needs and better integrating your services into their routines, loyalty can be built to fight the growing commoditization trend. It just needs to be done quickly, before consumer patterns have changed too significantly toward a price-switching model.
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