Insurers urged to offer more to customers to fight commodification and build loyalty

Insurers can fight commodification and build customer loyalty if they offer more to customers by building an “ecosystem” of additional services to policyholders, according to consultants Bain & Co.

Bain surveyed more than 170,000 policyholders in 20 countries to gauge how loyal they are to their carriers.

It found that insurers are discovering new ways to build loyalty by offering their customers an interconnected array of services that extend beyond insurance. Of those policyholders interested in ecosystems, 61% in the UK said they would be willing to switch providers if their desired services were offered – “an indication of the extent to which these services have the power to attract new customers”, according to Bain’s report, Building Connections – and Profits – With Ecosystem Services.

Bain’s survey found that customers are looking for additional services that provide safety, prevention, convenience, and rewards for good behaviour. It said that insurers can be sole providers of additional services, or engage in partnerships with other providers and technology companies.

One recent example is insurers Legal & General, Aviva and RSA separately partnering with HomeServe to offer leak detection technology as part of their home insurance packages.

“We are seeing a growing polarization in the insurance sector between low-cost providers on one end, those who are redefining the very nature of what it means to be an insurers on the other, and commoditized players in the middle,” said Henrik Naujoks, who leads Bain’s insurance work globally.

“While the ecosystem approach may not be a good fit for every insurer, those that do want to become the central player, must move fast and decisively to fend off the competition.”

Building a framework of other services to customers “helps insurers to overcome the low-touch nature of their industry, creating opportunities for more frequent interactions with customers, which has a remarkable correlation to customer loyalty”, according to Bain.

“Customers using ecosystem services said they are willing to pay higher premiums if ecosystems services are included – a strong sign that companies can use an ecosystem strategy to break free from the commoditization trap,” Bain said.

In motor insurance, Bain found that up to 60% of survey respondents globally would be willing to pay more for additional services.

Additionally, Bain found that many of these ecosystem services help people live healthier and safer lives, which, not coincidentally, can lead to fewer insurance claims and potentially boost insurers’ profitability.