In Difficult Times, Loyalty Emerges as a Valuable Commodity
In the current volatile insurance market, characterised by inflation, rising costs, and a cost-of-living crisis, insurers are facing tightened budgets and eroded customer loyalty. However, a strategic approach to Customer Lifetime Value (CLV) could help these companies break free from the price trap and improve profitability.
Traditionally, price comparison websites (PcWs) have dominated the insurance market, accounting for 90-95% of customer acquisitions. These platforms, while efficient for short-term gains, often lead to fierce price competition, resulting in high churn rates, low loyalty, and narrow margins.
However, direct customers, those not acquired through PcWs, tend to be more loyal and spend up to 12% more, staying 25% longer than those acquired by PcWs. By targeting high-value groups directly, insurers can bypass PcWs entirely and focus on long-term customer value and retention.
CLV takes into account multiple dimensions of customer behavior and value, such as the cost of acquisition, length of relationship, and frequency of engagement. By understanding a customer's lifetime value, insurers can avoid high-risk 'spinners' and focus less on price-driven shoppers.
Insurers can use CLV data to tailor their products, services, and communication to individual customer needs, increasing satisfaction and loyalty. This personalised approach diminishes the likelihood that customers will shop around based purely on price.
Moreover, CLV insights enable better pricing and underwriting decisions that reflect the true value of the customer relationship, not just short-term premiums. This enhances profitability and reduces the need to offer steep discounts to compete on price alone.
Businesses that use CLV can also deploy churn analytics and targeted retention campaigns to keep profitable customers longer, increasing lifetime profitability. Retaining loyal customers reduces acquisition costs often amplified through price comparison sites.
To escape the price trap and improve profitability, insurers need to shift from a short-term to a long-term view and focus on customer lifetime value. This approach encourages investment in customer experience and product flexibility, fostering deeper customer relationships and life-long engagement.
In conclusion, by leveraging CLV analytics, insurers can move away from the commoditized, price-driven environment propagated by comparison sites and focus on building loyal, profitable customer relationships. Insurers need to take a holistic approach, valuing long-term relationships over quick wins, to build stronger and more profitable customer bases.
- In the current insurance market, where short-term gains from price comparison websites (PcWs) often result in high churn rates and low loyalty, an insurer's opinion on the importance of Customer Lifetime Value (CLV) could be to shift focus from pricing competitions to long-term customer value and retention.
- A strategic approach to Customer Lifetime Value (CLV) in the insurance market, characterized by inflation, rising costs, and a cost-of-living crisis, could help insurers avoid the price trap, improve profitability, and foster deeper, more profitable customer relationships, thus diminishing the influence of events driven by technology and finance in shaping their business strategies.
