Car Insurance industry : Final nails in the coffin?
The European car insurance market generates €130.8bn in premiums with €1.3bn underwriting profit. At the same time, the major players have some of the lowest Net Promoter Score (NPS) ratings of any industry, meaning the companies do not inspire satisfaction or loyalty in their customers.
Overall high acquisition cost, low engagement, no brand loyalty and high cost of retention among young people and new trends like car sharing, self driven cars are putting huge pressures to the car insurance industry.
High cost of acquisition
The current young generation is extremely price sensitive but at the same time brand conscious. To penetrate this market a company has to either give very good price or sell value with a strong brand association.
Most insurance companies have a weak brand value. So the only way they can get new customers in the young age group is by giving discounted price. Sometimes this price is even lower than the cost and insurance companies end up making up losses.
No brand loyalty
Insurance companies have almost no brand loyalty among young people. Insurance have some of the lowest Net Promoter Score (NPS) ratings of any industry, meaning the companies do not inspire satisfaction or loyalty in their customers. Our recent survey among 100 car drivers in the age group under 30 shows that everyone is willing to switch over to another insurance company if they get a better price
Insurance companies are not able to offer any differentiation and added value compared to other competitors, which is the key in building a brand.
Low engagement
A study from McKinsey and Company found that car insurance companies have around 4 interactions per customer per year as compared to 400 by social media companies (Fig 1). This is extremely low esp if a company wants to engage young customers.
High retention cost with no surety on returns
The strategy most insurance companies follow is to continue giving heavy discounts on insurance premiums till the customer reaches a certain age. This is a high risk strategy as there is no brand loyalty and when another insurance company offers a better deal, the customer moves to the new company.
In past, people would normally stick to the same company (for whatever reasons) but current generation is extremely knowledgeable of different options and always looking out for the best option, making it very easy for them to switch to other companies.
New trends disrupting the market
New trends like car sharing and self driven cars are fast approaching. These models are changing the way cars were used and thus insurance companies also need to change their model to adjust to these new trends. Often the management team in insurance companies are yet to fully grasp on how to deal with these trends and believe it will be years before they will be mainstream. Unfortunately disruptive innovations often seem far away in the beginning but hit the market much faster and harder than initially thought.
Don’t play a price war, play a value war
Insurance companies need to realize that they cannot win the young generation market by giving low price. There will always be another player undercutting the price and all the money spend on acquiring and retaining a customer will be wasted.
Instead companies need to build their brand and add value in their offerings. A way to do so is by creating a fan following and focus on building communities. The greatest asset a company can have is a big community which loves the brand. They not only they stick with the products but also bring in new customers at almost no cost.
Build a community
It’s easy said than done. Building communities is one of the hardest thing to do as it requires a great deal of effort in the beginning and have the right communication and marketing strategy along with providing the right incentives.
For example, when we were building Road Skippers community we realized that perception of value is often not directly related to money. A 25 euro may not be perceived same value as 2 cinema tickets will be. Because cinema tickets are not just the money, it’s also a quality time spent with a friend or family and creating some memories. Such kind of incentives and rewards help build the brand loyalty.
People are bored, they need something interesting to be associated with
Most people have a very standard life. They are always looking to be associated with something exciting but it has to touch them emotionally. That is the part of marketing and branding.
For ex, in Road Vikings we linked the rewards with some sort of good behavior and encouraged people to drive well. Thus keeping the roads safe, saving lives and also personally benefiting from it through getting rewards. Such kind of campaigns (helping the society + benefiting personally) goes well with people and they relate to be part of a community.
Don’t be afraid of future, Create it
Recent advances in Artificial intelligence and machine learning opens up doors for doing a lot of interesting things which was not possible earlier. Cars are becoming computers and this means a lot of relevant data about the drivers. Such kind of data can be a goldmine for insurance companies if they are able to use it appropriately.
One of the key things that insurance companies should explore is to use data to identify riskier drivers. It has proven to be very difficult to isolate individual drivers having a ‘‘higher than expected’’ number of accidents. In fact studies have shown that even over a very long period such as 20 years it could be demonstrated that for over 80% of all accidents that occurred, the drivers were never before involved in a crash.
Therefore, more and more road safety prevention is aiming at improving safety culture. Safety culture may have great potential for improving traffic safety. While concepts as feedback and gamification can be applied to different analytical units (like speeding, braking acceleration etc) there is growing evidence that peers is the analytical unit which potentially has the most significant effect.
However, to come up with an efficient gamification and feedback approach for road safety it is essential to identify what people consider as peers. To do so a machine learning algorithm using data from the social networks could be setup to identify clusters of peers.
Once those clusters are characterized the next step would be to define goals and rewards for this cluster instead of putting individualized goals. Very likely those goals will be achieved faster than individualized goals. In this way contributing to the overall safety culture.
This is what we as a company are building. There are a lot of challenges but we are confident of reaching our goals and be part of the future.
Please feel free to leave your comments below.
Written by Rudradeb Mitra, originally posted on 05/06/2016 on Medium
