Why customer segmentation is critical for insurers
Clearly understanding customers’ needs, concerns, hopes and expectations enables insurers to develop a superior customer experience.
For insurance companies to provide a superior customer experience, they must fully understand who their customers are — what motivates them, what concerns them, their hopes, their expectations and their life situations. As PWC articulated: “the immediate challenge is how to keep pace with expectations that are largely being set outside their sector, while also competing to attract and retain customers and drive value across the product portfolio and over the lifetime of the customer.”
For example, the insurance needs of a 24-year-old elementary school teacher sharing a one-bedroom condo in Boston likely are entirely different from those of a 55-year-old married, affluent father of three in Phoenix with a mortgage, a home-based business and two car loans. The insurance products best suited for the young educator in Massachusetts are likely not to be appropriate for the middle-aged dad in Arizona.
The value of data & segmentation
That’s why insurers must use data from multiple sources to segment their customers. By grouping customers based on common personal and financial characteristics, current and future needs, and long-term goals, insurers can create personalized products and services that will drive revenue.
While understanding all your customers is intrinsically important, the real payoff of segmentation is it allows insurers to identify their most profitable customers and to optimize the customer spend. “Analytics tools spotlight the highest-value clients and high-potential leads” so insurers can invest resources more efficiently, writes McKinsey in a new report. While traditionally companies tended to spend proportionately based on current customer behavior, or equally across all clients, this tactic led to missed opportunities with customers that have higher growth potential.
Those resources can include support time, product development time and the creation of special offers. Further, effective customer segmentation positions insurers for up-sell and cross-sell opportunities if their analytics uncover buying trends or ownership patterns across different segments.
Knowing their customers pays off for insurers in any environment, but it is particularly critical today as inflation drives up prices and puts pressure on margins. The key to gaining actionable insights into your customers is data. Here are three specific data sources insurers can use to effectively understand and segment their customers:
Third parties
Insurers can purchase consumer data from aggregators such as Acxiom and Experian that contains vast amounts of information for segmentation. Through aggregators or direct sources, insurers can access demographic data, identity data, personal background information, lifestyle data, individual health records and prescription histories, personal financial data, credit history, shopping history, preferred mode of payment, property and vehicle information, driver records, data on property risks (e.g., flooding, wildfires) and weather data (e.g., historical, current and forecasted).
Third-party data is useful to insurers both for customer segmentation efforts and to improve efficiency by enabling data pre-fill, which streamlines the application process and enhances the customer experience.
Internal sales data
Insurers have a wealth of internal information for customer segmentation on hand in the form of sales data. How customers have spent their money with you provides many clues about what motivates an individual or customer segment to make a purchase. This information provides the basis for insurers to anticipate customer needs and tailor products and services to meet those needs.
Applying analytics to sales data allows insurers to segment customers by the types of products and services they’ve purchased, what time of year they’re most likely to be looking for insurance, how much they typically spend, and other transaction-based information.
Customer interaction data
Insurers can learn much about their customers — from the customers themselves — simply by capturing and analyzing data from support interactions. When customers call or exchange digital messages with a support agent, they are communicating volumes (through their words and tone) about their current needs, expectations and state of mind.
Insurers can use data from customer interactions to segment clients by interests and areas of concern. For example, insurers can segment people who are asking about COVID credits. Should certain questions come up repeatedly, it tells insurers what is top-of-mind for many of their customers. This information can lead to revenue opportunities or identify potential problems to address such as customers in specific locations not receiving renewal notifications until their policies had expired.
A cloud-based platform that offers customers multiple channels for communicating with support personnel makes it even easier for insurers to gather valuable data for segmentation. In addition, a customer support platform with artificial intelligence (AI), machine learning (ML) and natural language processing (NLP) can supply even more data from customer interactions by conducting sentiment analysis.
Not only do these intelligent tools assist the support worker in real-time by feeding them appropriate responses to customers who may be distraught or angry, but it also gives insurers insights into that customer’s current emotional state. This can provide an opportunity for the insurer to reach out to the customer.
“The exploding volume of data available to insurance carriers is giving rise to new business models, revenue streams, and enormous opportunities to increase value,” McKinsey writes in its report. “As first movers among insurers create new business models and seek to harness the potential of their data, those that wait will be at a significant competitive disadvantage.”
Segmentation increases the value of customer data by giving it context, making it easier for insurers to understand and meet the needs of existing and potential customers. Combining third-party, internal sales and customer interaction data from your support center will help insurers better serve their customers and provide highly targeted products and services that will sell.
Ilya Filipov is the director of industry strategy for financial services and insurance, at Talkdesk. Contact him at Ilya.filipov@talkdesk.com.
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