customer loyalty is on the decline, highlights a study by
Capgemini. But while some insurers may see this as a threat, the
changing environment also presents growth opportunities to those
that adopt an analytical approach to customer behaviour, reports
Charles Davis.
Major shifts in world insurance markets could present huge
growth opportunities for insurers willing to change with the times,
emphasises consultancy Capgemini in its World Insurance Report
2008, an international study of more than 11,000 insurance
customers and industry executives.
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The message is one of great change and fluidity across the world.
The insurance sector in mature countries is slowly moving from a
very static state to a more fluid one, and insurers can find growth
opportunities by understanding, capturing and even creating
volatile customer clusters in their markets.
Many mature insurance markets have become saturated, the basic
insurance needs of most customers having largely been met. The
study found that the average mature-market customer holds 5.2
policies – 1.5 life and 3.7 non-life.
However, signs of customer volatility, such as switching
distributors or insurance providers, are emerging, and contract
turnover is already increasing in some countries, such as the UK,
Italy and Spain.
The study found that insurers that effectively employ
behavioural-based profiling and customer-volatility analysis can
more accurately gauge the value of each customer cluster, and align
strategies accordingly.
Customer segments
Capgemini’s behavioural profiling shows four clear segments of
customers in mature markets: traditionalists, opportunists,
indifferent and average users. The segmentation reflects important
and often distinct customer perceptions and attitudes towards
insurance, its value and potential, and different buying
patterns.
Each customer segment has a different value, but it is critical to
take account of potential for customer volatility in trying to
assess that value. For example, traditionalists are potentially the
most valuable group, given their financial means, and their
tendency toward supplier loyalty (a lack of volatility).
Opportunists could also be high-value, but tend to be more volatile
– making them more complex to serve.
The study found that distribution network use varies greatly by
country, and tends to be heavily specialised. Insurers can better
address volatile customer clusters, retain full market access and
increase wallet share by adopting a structured multi-distribution
strategy. Overall, though, customers told Capgemini that they
expect to change their distribution network preferences
significantly in the next three years. The ascent of the internet
is undeniable, and clearly puts some existing distribution networks
at risk, as customers perceive the internet as a superior means of
delivering on key factors that influence their buying
decisions.
Each distribution network specialises in certain customers,
products or needs, so insurers have to use multiple distributors to
retain market access and increase wallet share. However, while
multi-distribution is a prerequisite for growth, insurers can
leverage their multi-distribution model even more effectively if
they understand when to switch their focus to increasing the number
of policies a customer holds with a single distributor.
The study found that bancassurance has become a successful
distribution model, catering to a specific type of customer and a
specific set of needs, but also sounded a cautionary tale that its
enviable position could still be shaken by market forces.
“Bancassurers have effectively leveraged point-of-sale intimacy and
network advantages to ply insurance products to certain customers;
insurers that utilise bancassurance as a network are reaching
customers they might otherwise forfeit,” the report said.
“Convenience, even more than price, is a differentiating factor for
customers who buy insurance through a bank. Bancassurance has
relied on a degree of opacity in certain types of products, but it
is not immune from shifts in market and customer norms, and may yet
be forced to change some of its selling practices.”
Three challenges
As the insurance landscape shifts, Capgemini identifies three key
challenges: managing the business impact of changing market
dynamics; taking a more assertive role in the interplay with
customers and networks; and dealing with IT as both a prerequisite
and a tool for overcoming challenges.
“Insurers need to understand when to drive market evolution, and
even encourage certain volatile behaviours,” the report said.
“Those insurers that properly gauge the value/volatility stakes can
define strategy more clearly. Insurers will need to be more
proactive than they have traditionally been in managing their
interactions with and among networks and customers, and work to
differentiate their brand and reputation. Optimising customer
profitability will mean optimising network use by segment, and
properly monitoring customer and network value.”
Focus on IT
Three main IT focus areas can help insurers to overcome these
challenges, according to the report. Enterprise data warehouses,
analytics and customer intelligence can enhance customer knowledge,
and hone behavioural-driven customer segmentation. Systems
integration and service-oriented architectures can allow insurers
to adapt and change their distribution capabilities according to
market dynamics. Next-generation customer relationship management
tools can help insurers and networks to manage customers under a
global, enterprise-wide umbrella.
However, fuelled by increased competition, easy access to more
information, greater customer mobility and innovative product
choices from insurers, traditionally passive insurance customers
are also becoming more volatile in their buying and loyalty
patterns. The report reveals that contract turnover is on the rise
in many mature markets, and is especially intense in the UK. The
report indicates insurers should expect trends such as those
emerging in the UK to spread to other mature markets.
The report also cites a clear trend towards specialisation by
distribution networks that realise they need to meet specific
customer product demands to thrive. This specialisation is also
forcing insurers to multi-distribute to better address volatile
customer clusters, to retain access to all major segments of the
existing and potential customer base, and to increase wallet
share.
