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Beyond premiums: What really drives customer loyalty?

Submitted by admin on October 17th, 2024

Personal lines insurance is very sensitive to the level of premiums. As discussed above, maintaining a 20+% expense ratio is impossible for insurers. Beyond pricing, what really fosters customer loyalty, and how can insurers compete to gain increased market share?

In this blog, I am going to explore strategies toward improving customer loyalty and retention, make some forecasts on how the auto and home insurance risk landscape may continue evolving, and discuss Accenture’s predictions for how personal lines buying behaviors may change over the next decade.

Changing landscape of personal lines risk

What was once a niche product, personal lines insurance has morphed into a digital commodity traded around the world. It started out as a pure trading commodity, completely done on paper or manually. Today, with an approximate 4 billion vehicles and homes in the world, personal lines insurance is a worldwide commodity and a constantly changing risk.

By way of contrast, the auto and home insurance risk landscape varies significantly. Auto insurance covers a much more homogeneous risk profile with about 600 common vehicle models around the world. Advances in electric and driverless cars are altering road laws as well as how cars are repaired and introduce new risks that require product liability and cyber coverages.

Home insurance insures different risk profiles with thousands of different types of homes and building standards. Extreme weather also greatly influences the underlying home risk, impacting both frequency and severity of damages. Fairly, this is the right prediction that extreme weather will not only affect ratings but also building codes, which would provide additional variables for pricing upon.

Although personal lines insurance categories home and auto represent key spaces, the consumer is also dealing with the effects of widespread disruption – a volatile economic environment, spillover from the COVID-19 pandemic, as well as an ongoing technological revolution moving the global dynamics paradigm extensively.

The consumer’s latent need for insurance is now quite high; however, the scope and nature of risks are changing at the same time. We found that the two top concerns for consumers who feel least protected are also most concerned by risk are living cost and climate change.

Generational Changes in Buying Insurance

The core consumers of insurance have changed. Millennials, or so-called digital natives, are reaching their peak years in terms of purchasing insurance. Insurers have to change their mindset and align with the demands of this new demographic. Everyone would want more, better, and faster services regardless of demographics. Consumers desire to satisfy their personal needs quickly and painlessly but are willing to share data to be able to attain such improvement in experience and product.

Strategic Areas to Improve Value Proposition
1. Customer Experience as Brand Identity: Make brand identity tangible in each interaction with the customer so that there is a consistent, recognisable brand experience across all touchpoints.
2. AI-human hybrid employees: Not about AI solutions, but augment human employees with AI; more intimate, empathetic, and personal. Therefore, customers would feel thoroughly understood, although this requires fine nuance.
3. Engaging Digital Experience Deliver digital experience that evokes an emotional engagement. For example, real-time updates of extreme weather, top attraction sites, and health advisories have a huge possibility to engage the customer. Traditional risk mitigation notifications do not create an emotional bond with the customer.
4. Real Benefits of Digital Adoption To encourage customers to adopt a digital channel, firms should ensure that such adoption brings meaningful value; otherwise, they would not consider the shift to be worthwhile. Some such real benefits include highly accelerated resolution times and customized interactions while trying to access services through digital channels.