Report: Customer Targeting Is ‘New Way to Win’

Car insurance companies haven’t maximized the billions spent in marketing themselves to toward customers who have ever-expanding ways of researching and buying auto insurance, according to a new report from McKinsey and Company.

Not that it’s an easy task.

Tanguy Catlin, a partner at McKinsey and lead study author of “Winning Share and Customer Loyalty in Auto Insurance,” talked with Online Auto Insurance News (OAIN) about the blessing and curse that channel diversification has presented to the auto insurance industry.

Customers now have more ways than ever to find out about and communicate with car insurance companies, he told OAIN, but “no insurer is offering a fully seamless experience across agents, call center and online/mobile.”

The report found that the rates that customers shop for and switch car insurers dropped to lows not seen since 2008.

Insurance companies confronted with a smaller pool of possible customers now have to make their strategies more effective, according to McKinsey.

“To maximize marketing impact, carriers must consider what to say to target consumers, how to say it, where to say it and when to say it,” the report said.

More Channels, More Challenges for Insurers

McKinsey surveyed more than 16,500 consumers for the report, finding that respondents see a “vastly improved” fluidity between channels as they shop and buy coverage.

Integration of the call center and online experience “is further ahead” than other channels, Catlin said.

Although one might think that channel diversification is undeniably good for car insurers, it’s exactly that diversification that has become a challenge, according to Catlin.

“The number of channels keeps expanding,” he said, adding that the use of mobile devices to find quotes has presented the industry with a new obstacle in guiding a customer from shopping to purchase.

“The systems need to recognize the shopper and pull up all the information,” Catlin said. “What happens when we talked to a field agent and then call later in the day … but get routed to the call center after hours?”

The increase in channel availability is not only presenting a problem for insurers who want to reach new customers, but also for insurance carriers who want to keep their current customers.

“As they move from gathering information through the quote and purchase phases of their journey, auto insurance shoppers are more open than ever to considering new brands and dropping considered brands at each step,” McKinsey said in its report.

Consumers Shopping Direct, Buying through Agent

According to the report, the most common customers reported for shopping were:
–Price increases (48 percent)
–Life event, like new employment or residence (44 percent)
–New coverage needs (32 percent)

Several industry surveys have shown the increasingly strong presence of direct channels like the Internet. McKinsey confirmed the strength of that presence, reporting that more than 4 out of every 5 consumers use a direct channel (the Internet or a call center) to gather information.

In addition, 3 out of every 5 consumers used a direct channel for “post-purchase support.”

Still, customers value “the personal touch” when they’re not shopping for insurers, according to the report. An even higher percentage, 3 out of every 4, of those surveyed reported that they “spoke with a person” for support after buying coverage.

The agency channel is also still the most relevant channel in converting shoppers to buyers, the report found.

“When actually purchasing insurance … most shoppers prefer to speak with an agent,” the report said, adding that 3 out of every 5 consumers use agents to combine different lines of coverage to purchase, a process called “binding” or “bundling,” which the report said is one of the most effective ways to boost policyholder retention.

McKinsey has previously reported on what it says is the evolving, but still important, nature of insurance agents in an industry that is increasingly reliant on technology.

‘A New Way to Win’ Among Fierce Competition

McKinsey said its latest report offers strategies that allow smaller insurers to be competitive. And there is certainly a strong pool of potential customers to win over.

Nearly 1 out of every 5 policyholders is “passive,” according to the report, meaning their loyalty to “remain with their carriers [is] out of inertia more than satisfaction.”

In addition, shoppers are more willing to look beyond their initial choices and explore other options for coverage, dulling the impact of national marketing campaigns that major insurers wield to get themselves into that set of initial choices.

Shoppers considered an average of 4.5 insurers when first evaluating insurers and added an average of one insurer by the end of that process, according to the report. Shoppers sought quotes for more than 3 of those evaluated insurers, according to the report.

With myriad “capabilities and tools” needed to effectively court different kinds of consumers at “each phase of the consumer journey,” there are plenty of ways for smaller insurers to move up the industry’s food chain, the report found.

“This news is particularly relevant for carriers that have neither the resources nor the appetite to match the marketing spend of the leading brands and secure a place in the initial consideration set,” the report said. “Carriers that can target these segments accurately will unlock a new way to win.”

Large insurers, however, still have the upper hand because they are “better positioned to take advantage of economies of scale in pricing, technology and marketing,” Catlin said.

Catlin told OAIN that, just as smaller carriers benefit from a “more targeted” approach, larger carriers need to diversify their targeting of customers.

“[Large insurers] cannot sustain their market share by focusing on a single segment,” he said.

That is sound advice, based on the first-quarter market report from SNL Financial that showed a major switch at the top of nationwide market-share standings. Allstate, the long-reigning owner of the second-highest spot in U.S. private auto premiums, lost its place to GEICO, according to the report.

Market analysts told OAIN that GEICO had built its progress in the market through the last decade on a direct-to-consumer model that Allstate tried to later replicate by buying Esurance, a direct-to-consumer insurer, in 2011.

Competition Anticipated to Heat Up

New volatility in market standings among large insurers likely foretells vicious competition to come, according to Catlin.

The cutthroat competition may already be underway.

With a firm grip on consumers who value the price and convenience of online purchasing, direct-to-consumer insurers are already looking to expand their reach. Their next step, Catlin told OAIN, includes creating “the perception of having local presence through stores and the use of billboard and radio advertising.”

Travelers, which SNL Financial reported had year-to-year slippage in first-quarter premiums, is one major insurance company looking to better position itself in the auto insurance market. President Brian MacLean announced a strategy to investors last week that included cutting millions in costs and hundreds of jobs.

“We anticipate competition to become more fierce across the market,” Catlin told OAIN.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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