P/C insurers faced with accelerating churn and switching behaviors

By Nick Frank and Michael Nadel

Property/casualty insurers had one of their worst years in 2022 as runaway inflation, shortages and higher prices drove up claim costs. As we look at the year ahead, insurers must not overlook the impact of the turbulent economic environment on consumer behaviors.

Auto and home insurance premiums are rising, at a time of economic uncertainty when consumers are feeling fearful, cautious and unsure. Customers under financial stress tend to have lower perceptions of quality, value and service, and these perceptions will negatively impact loyalty and satisfaction. Insurance carriers already struggled with customer retention and satisfaction coming into 2023. Longer claim cycle times and choppy digital experiences in 2022 have caused customer satisfaction scores to dip, according to J.D. Power's property and auto claims satisfaction studies. Retention was also an issue before the pandemic: Between 2018 and 2020, the average churn per customer increased from 20.1% to 25.4%, costing US insurers $540 million according to The CallMiner Churn Index 2020.

Simon-Kucher expects P/C churn rates to increase significantly in 2023 compared to previous

years. In a recent Simon-Kucher project, 74% of personal P/C insurance customers said they are comparison-shopping more frequently in response to inflation. More than half of customers said they are likely to switch providers, and nearly 60% of customers said their policies included benefits that they no longer needed or found valuable.

This does not mean there are no opportunities for growth. The Simon-Kucher project found certain customer segments willing to pay for high-value insurance products, secure more coverage, and upgrade to more comprehensive products and services. This suggests that there are opportunities for growth as long as insurance providers can identify these customers and find ways to engage them.

Underwriting and operational excellence is critical, but P/C insurers must not neglect the role of precision marketing and advanced segmentation techniques to help them gain a better and deeper understanding of their customers. New customer segments and growth opportunities are emerging, customers' pricing sensitivities and priorities are evolving, and there are new issues such as the higher incidence of switching that must be addressed. Insurance providers must be able to accurately anticipate and respond to changing customer priorities, expectations and pain points.

In uncertain, fast-evolving market conditions, it is no longer enough to segment customers according to demographics, instead segmentation must focus on customer needs. More precision and granularity are required to support targeted marketing and sales strategies that can position the right product, to the right customer segment at the right time.

Data-driven customer segmentation

By leveraging data, analytics and advanced segmentation, insurers can develop a granular understanding of their customers evolving insurance priorities, life situations, motivations, buying behaviors and unmet needs. Which customers are most likely to switch providers? Where are the high-value customers and how do we retain them? Where are the pockets of profitable growth?

Granular segmentation and a customer-centric approach to product development and design is critical if we want insurance products, services and experiences to resonate with customers. For example, by using a behavior-based approach to segmentation to observe purchasing patterns, feature preferences and tenure, P/C insurers can identify their most valuable customers to introduce ways to reward loyalty and personalize sales strategies to optimize up-selling and cross-selling.

Competitor response modeling

Another way to address churn is to leverage competitor response modeling to predict competitor actions and develop appropriate counteractions or responses. A well-planned, proactive and competitive response can improve retention, convert new customers and even help an insurer take advantage of changing market dynamics. For example, in anticipation of a competitor's new product launch or pricing move, product development and marketing teams can program an appropriate response strategy or introduce comparable products to reduce switching behaviors.

Conversion optimization

Using qualitative and quantitative user insights, insurers can identify the features that are most valuable for each customer segment. Like other industries, insurance suffers from “feature overload,” a phenomenon where companies include product traits or attributes, they assume are valuable to their customers. Instead of adding value, we end up with bloated products that cost too much, confuse and overwhelm customers, and overdeliver.

In order to drive increased conversion, insurers must always be evaluating whether their products are delivering value for their targeted segments. Proper pricing, product development and offer design can be optimized to increase acquisition and reduce churn.

Predictive analytics and modeling

Despite the inflationary environment, there are P/C insurance customers who are willing to consider more coverage or who are in the market for high-value insurance products with higher limits and greater coverage. Identifying and nurturing these high-potential prospects can help ensure profitable growth.

Research, data analytics and predictive technologies can help insurers optimize product development and innovation, respond to evolving customer needs, and identify growth opportunities with agility, precision and speed.

Financial constraint leads people to revisit their purchase and think about what else they could have done with that money, said Gavan Fitzsimons, professor of marketing and psychology at Duke University's Fuqua School of Business. Insurance providers must keep their customers close, redouble efforts to reward loyalty, and finds ways to improve customer satisfaction.

Nick Frank is a partner and Michael Nadel is a senior director at Simon-Kucher. Contact them at [email protected] and [email protected].