Core marketing capabilities for the road ahead
Insurers will need to develop a far more sophisticated view of the segments of insurance shoppers.
- March 2013
- Tanguy Catlin, Devin McGranahan, and Sharmila Ray
For U.S. auto insurers, the ability to grow profitably will increasingly depend on whether they can reinvent their approach to marketing. Only a few carriers will be able to sustain the high-octane advertising barrage that characterizes today’s market. The top five insurers, each of which spends upwards of $500 million per year on marketing, have pulled away from the industry in terms of awareness. And even these leaders are realizing that the narrow focus on price-sensitive shoppers will not deliver sustainable profitable growth. For the rest of the industry, this competitive dynamic raises a strategic question: should they pay the price to command presence in the consumer’s initial consideration set, or aim at converting consumers downstream in the decision journey?
Both answers demand a new approach, one that goes beyond tweaking an existing strategy or implementing a few innovative tactics. To thrive, insurers will need to develop a far more sophisticated view of the segments of insurance shoppers and customize their approach based on the specific needs and behaviors of consumers in those segments. They will also need to shift some of their attention to the sometimes overlooked challenge of retaining their valued policyholders. Finally, they must dramatically improve the organizational strength of the marketing function in order to consistently ensure sufficient return on their marketing investments and deliver on the promises they make to consumers.
From the moment roughly a decade ago when GEICO and Progressive upended the traditional view of insurance shopping segments by focusing on price and convenience alone, most marketing messaging has focused relentlessly on price. Price-centricity has succeeded on one level: it has conditioned a segment of customers to shop — and frequently switch — at every renewal. But this segment is not as large or as valuable as the marketing firepower aimed at them would indicate. In fact, McKinsey’s auto buyer research shows that over 50 percent of quotes come from price-sensitive customers who account for less than 30 percent of policyholders. In other words, a very busy segment of serial shoppers make the price-centric marketing message appear more successful than it actually is.
If the other 70 percent — the “silent majority” of policyholders — appears to be difficult to reach, this is likely because they are unresponsive to marketing messages based solely around price. McKinsey’s Auto Buyer Survey results reveal that this 70 percent is composed of many distinct segments, each with differentiated needs, behaviors and preferences. Some carriers have been successful with one or two segments (e.g., GEICO with customers who value “ease of shopping” or State Farm with those who prioritize “protection”); others paint their customers with a broad brush, and miss the opportunity to sharpen their value proposition for specific segments.
An example segment, loyal policyholders, have varying motivations for staying with their carrier. The majority is actively loyal; that is, they are satisfied and renew without shopping because they value the relationship for one reason or another. A significant minority (18 percent) of loyal customers, however, is passively loyal. They stay put more out of inertia than from any active satisfaction. Insurers that can reach and dislodge these customers will open up new opportunities for growth.
The requirements of taking a segmented view of the insurance customer go beyond understanding preferences and needs. McKinsey’s research shows that the relative importance of each stage in the customer decision journey, the brand equities that resonate and even the specific marketing vehicles that are most effective — all vary by customer segment. The most effective marketing efforts will therefore be those that are tailored both in terms of message and medium.
One way to focus marketing efforts on specific segments is to develop stand-alone microbrands, a trend that emerged recently in the U.K. in the context of heightened price competition. Admiral, a British auto insurer, launched its Diamond brand, targeted at women; Elephant, focused on online-only consumers; and Bell, focused on rewarding drivers with low claim activity. In the U.S., a few sub-brands have emerged to broaden market appeal at carriers such as Allstate (Esurance) and Farmers (21st Century, Foremost and Bristol).
To succeed in a segment-based approach to marketing, auto insurers should keep the following imperatives in mind:
- Target segments based on an explicit appreciation for lifetime value of the customers.
- Develop a deep understanding of segments’ needs and behaviors, at every step in the consumer journey.
- Follow through with targeted strategies, and focus on offers that provide a call to action for customers to make the switch.
- To support their more sophisticated views of segments and tailored marketing messages, insurers must be able to track the effectiveness of each tactic by channel and segment.
- Dislodge competitors’ passively loyal customers with value propositions and calls to action tailored to their unmet needs.
TV commercials and other traditional media may still be the most visible form of auto insurance marketing, but carriers are gradually adopting new digital tactics such as targeted paid search campaigns, search engine optimization, banner ads and social media. Digital marketing is fast becoming a major battleground in the auto insurance marketing wars. Brand reputation and word-of-mouth recommendations in particular are now strong drivers of consumer choice in insurance, and a handful of carriers have launched social media campaigns via carrier-sponsored Facebook fan pages, Twitter accounts and even games. But the scale of social and digital marketing in insurance still pales in comparison with that of the leaders in other categories such as Starbucks, Procter & Gamble and Coca Cola. Insurers that can rapidly build capabilities and sophistication in the digital arena will be wellplaced to grow.
Retention is the new holy grail
Marketing in the insurance industry has historically focused disproportionately on acquisition. Hence, vast amounts have been spent on above-the-line, mass market advertising to drive brand awareness. However, marketing messages inducing shopping based on price are driving more customers to view the policy as a commodity, leading them to shop and switch more frequently.
The combination of higher acquisition cost and lower retention for frequent shoppers drives up the relative value of retaining existing policyholders. For large carriers, each percentage point of increased retention is equivalent to a boost of several points in brand awareness. In light of this, carriers must recalibrate their marketing efforts to achieve a better balance between acquisition and retention.
While retention in 2011 was 91 percent (up from 2008-2010 levels), this is not a cause for complacency. Among the “loyal” majority of policyholders, 18 percent remained with their carriers only after shopping and comparing quotes. Protecting the valuable customers within this group as well as the actively loyal customers against attackers with aggressive growth objectives is critical to the survival of many carriers.
Understanding the relative value of existing policyholders
If joining the ranks of the initial consideration set for insurance shoppers is an exercise in blunt-force advertising firepower, retention efforts should be the opposite: a targeted, layered strategy to identify and reach high-value policyholders. McKinsey research shows that degrees of loyalty vary significantly from one segment to another; most insurers, however, do not have a view of their customers’ behavior and preferences that is nuanced enough to carry out a highly effective retention effort.
This is in part due to a tendency to segment policyholders based on pricing attributes and binding channel preference rather than on their needs. Once they have an accurate view of the needs-based segments that comprise their existing policyholders, insurers can determine which segments are worth actively defending. For instance, a percentage of a carrier’s book is comprised of customers for whom price is all important. These serial switchers will more than likely leave for a competitor at their next renewal. Insurers must decide whether these customers are worth the retention efforts, or whether they should focus on retaining their more valuable loyal policyholders.
This is a complex challenge. Many touch points can influence a policyholder’s decision to renew and a good number fall outside the direct control or influence of the marketing function (e.g., claims, problem-resolution). This means that retention efforts demand both strong marketing capabilities and the organizational alignment to deliver on the brand’s promise consistently across all touch points.
Delivering on the brand promise
The emerging importance of segmentation and retention as elements of a successful marketing approach in auto insurance leads inevitably to the need for a third core capability: strength in delivering on the value proposition and brand promise that carriers make to their valued customers. The most sophisticated view of the needs and preferences of a valued customer segment will be for naught if promises made to those customers are not consistently kept.
This can be a tall challenge, because the touch points at which a customer can gauge an insurer’s fulfillment of the promise run the gamut of the value chain, starting with the initial interaction with an agent or on the company Web site or Facebook page, through the billing and renewal process, all the way to claims and customer service. To meet this challenge, the senior management team will need to assume collective responsibility for delivering target segment needs and developing effective customer engagement.
Submit a comment
Comments chosen to be published may be edited for length and clarity and will appear along with your name and details, but not your e-mail address. We will use your e-mail address only to send you a confirmation copy of your comments and to notify you if we publish them online. We value your feedback and will consider it carefully. Nonetheless, we receive so many comments that we cannot acknowledge all of them.