As competition between insurance companies intensifies, it is becoming increasingly expensive to attract new customers and achieve growth. Thus, the importance of customer loyalty is growing. Modern technologies support companies in this process.
Thanks in no small part to the success of comparison portals, German consumers have become more willing to switch when it comes to managing their finances and insurances.
This primarily concerns the SUHK segment, which seems to be particularly "uncomplicated" from the customer's point of view. However, this should not lead insurance companies to lull themselves into a false sense of security in the life and health sectors. Digital insurance companies are increasingly discovering this topic for themselves and are propagating particularly simple insurance cover. They are primarily targeting the Millennial generation (Gen Y), but Gen Z is already beginning to actively seek insurance coverage as well.
Two paths to growth
In order to achieve effective growth, the number of newly insured persons or gross premiums must be higher than the number of insured persons who have changed and their premium losses. In the meantime, however, demographic change is limiting the natural growth in the number of insured.
Insurance companies are therefore left with two ways to achieve revenue growth:
- Cross- and upselling with existing customers. In the past, numerous companies pursued this strategy by founding subsidiaries which, detached from the actual core brand, covered "simple" risks with their own presence in order to pave the way for the conclusion of life or health insurance policies.
- Intensification of customer loyalty: If the company succeeds in binding the insured more strongly to the company, the losses in premiums will be reduced as a consequence. The hurdles to growth are getting lower. And additional services, which do not even necessarily have to consist of traditional insurance, can generate more sales.
But how does modern customer loyalty work? How can generations Y and Z be addressed and retained?
Overcoming the obstacles of change alone is not enough
Customers are bound in two ways: Firstly, the willingness to change is reduced by barriers. The Apple company is a master at developing such "lock-ins". Those who enter Apple's product world benefit from seamless interaction between the various hardware and software components. Once you get used to it, it becomes increasingly difficult to switch to other manufacturers' devices and services.
On the other hand, customers who are willing to switch must be given reasons to remain loyal to the provider.
The realization of creating hurdles to switching is not new in the insurance world. Policyholders were to be retained by means of long terms in the contracts with a corresponding period of notice for termination. In return, there were (manageable) discounts on premiums.
This is an instrument that is increasingly being misunderstood, not least by younger generations. In a world where subscriptions to streaming services can be set up in minutes, but can also be canceled just as quickly, long contract terms and deadlines no longer seem appropriate.
But there is something else that can be learned from Netflix, Amazon and Co. The services regularly ask users about their wishes and preferences in order to create a basis for better offers. Insurance companies can also do this, provided that they are willing to collect and analyze this data.
AI tools such as predictive analytics help to identify customers who are at risk of switching. Countless internal and external data sources exist to help analyze the customer base, allowing you to actively target customers before it's too late. Machine learning and statistics can identify vulnerable customer groups.
A German credit institution has developed a product called "Wie für mich gemacht" ("Made for me") credit, which aggressively advertises breaks in installments when the borrower's circumstances change.
To take up a current example of changed living conditions: the pandemic is probably shaping the living conditions of customers like no other event at the moment. Proactive approaches could be made to policyholders in particularly vulnerable sectors to offer support. This would position the company as an understanding partner.
Add-on services can increase barriers to switching and potentially generate additional revenue. Take smart homes, for example: sales figures for home automation devices are still growing strongly. More and more people are discovering the convenience of controlling lighting and heating via apps or voice control. However, such devices are also used for home monitoring to warn of break-ins, fire, water damage or glass breakage. Insurance products can also be launched around this topic, and annual rentals instead of an (expensive) one-off purchase of the equipment would be a way of binding customers more strongly to the company.
Insurance companies thus have it in their own hands to continue generating growth even in a competitive market. AI technology, personalization and emotionalization are key to this.