Robin Wagner | Senior Vice President | International Insurance | TransUnion | mail me |
The insurance ‘grudge purchase’ can open a world of valuable personal engagement and revenue opportunities in a well-designed service ecosystem.
As insurance products become more homogenous and industry competition intensifies, insurers need ways to differentiate themselves and stay relevant. I explore the provision of credit education and protection as a value-added service in the insurance ecosystem.
Increasing the value of a ‘grudge purchase’
While many consumers view insurance as a ‘must-have’ or ‘should have’, it is a grudge buy for most.
And in light of the economic challenges and financial hardships brought about by the COVID-19 pandemic, consumers are more likely to shop around for savings on insurance products. This puts extra pressure on insurers to deliver perceivable value in a competitive market where product differentiation is already difficult and margins are tight.
In addition, the rise of InsurTechs presents challenges to traditional insurers. Those that don’t innovate now are likely to lose market share to new entrants offering greater personalisation and services that at least meet (if not exceed) consumer expectations.
Additional services can enhance retention and build revenue
Insurers with an ecosystem of services complementing their core offering have shown a higher Net Promoter Score (NPS), greater retention rates and a more diversified revenue stream.
Retention is one of the most critical profit drivers for insurance businesses. By bundling additional services around their core offering, insurers can provide enhanced value and increase stickiness.
For example, Discovery Limited, a South Africa-based financial services group, delivers a platform of added value and rewards around their core health insurance product through its pioneering Vitality programme. This kind of brand differentiation has set it apart from competitors and is key to retaining loyal customers, especially in times of financial hardship.
A Bain & Company study on US home insurance providers showed an average NPS of 20 for those offering no additional services.
The NPS rose to 49 when offering 3 or more services. In addition, 42% of customers expressed interest in ecosystem services and were willing to switch providers for those services.
Service ecosystems can help offset margin compression by providing alternative streams of revenue.
Deloitte research in the UK points to around 30% of an insurer’s revenue coming from services by 2025. A Bain & Company study showed 36% of customers using ecosystem services were willing to pay higher premiums for those services.
The perceived increased value of a bundle of products allows insurers to obtain greater pricing elasticity around their core offerings. There’s also the opportunity to build an additional revenue stream from these extra services through fees or commissions.
Selecting services that add value
There’s often very little communication between insurers and customers beyond the quoting and renewal stages. By making relevant services available and demonstrating the value of packaged offerings, you create more opportunities to engage customers and build loyalty.
About 30% of South African insurers say poor communication was the second biggest cause of customer complaints.
Customer value is the ultimate differentiator. As with other successful and scalable innovations, the real value lies in helping consumers understand and manage their financial wellness – a good fit for insurance offerings focused on protecting financial positions and assets. As more transactions move online, the risk of identity theft is a growing concern.
Insurers with an ecosystem of relevant, value-added services have a greater opportunity to communicate with their customers, build stronger relationships, enhance their brand’s perceived value, and improve retention and revenue growth.
