Insurers struggle to balance customer acquisition and retention: study

Customer retention is crucial in markets where new buyer growth has stagnated.

Very few insurers have the capabilities to excel at both acquiring and retaining customers, according to a study by Bain & Company.

Insurers in developed markets, which include China and Australia, see slow growth for their first-time insurance buyers. The average number of products that consumers own has stagnated, the management consulting company said in a report. 

“This is another reason that retaining customers is critical for growth, as it links to product ownership—through effective cross-selling, customers who stay longer with an insurer own more of its products and thereby improve the company’s economics,” Bain & Company said in its report, “After Years of Customer Loyalty Programs in Insurance, What Works, and What’s Next?”

But acquiring customers requires different capabilities and actions, and few insurers do both well, Bain said.

“Customer acquisition tends to be more expensive than retention, yet it still contributes to growth. Smart acquisition hinges on understanding which consumer segments to target, whether the segmentation derives from age, region, lifestyle, or customer needs,” the report said.

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Improved loyalty
Although insurers, especially those in developed markets, struggle with juggling acquisition and retention of customers, overall loyalty amongst insurance customers has steadily improved by 10 to 30 percentage points over the past decade, Bain & Co. said.

Reasons and trends vary per sector. In the life insurance market, a carrier’s reputation plays a greater role in attracting and keeping customers than price. Focusing on products and an experience that builds on advocacy has become non-negotiable for retaining customers, Bain found.

In contrast, switching rates in property and casualty markets have risen between 2016 and 2022 across most developed markets, which include China and Australia. 

This reflects the smaller coverage and higher premiums that many carriers in these markets pushed between these years. This, in turn, spurred people to shop for lower-priced alternatives.

In China, 19% of insurance customers switched their property and casualty carrier in 2022, rising from just 6% in 2016. In Australia, 12% of customers made the switch in 2022, versus 7% in 2016.

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What customers really want
As for what attracts and keeps insurance clients, Bain & Company found that elements of value often boil down to experiences that are simpler, cheaper, more secure, yet still offering a plethora of choices to the consumer.

The top 10 elements of value in Bain’s study are: reduces risk; reduces anxiety, reduces cost; simplifies; quality; variety; avoids hassle; provides access; informs; and ethics.

Some insurers still fail to deliver at some of these. For example, in Switzerland, less than 1 in 2 customers (40% to 50%) indicated that their carriers have delivered a service that reduced their anxiety, avoided hassles, and gave them more variety.

“Beyond basic protection, consumers increasingly want insurers to excel on dimensions other than the functional basics of what we call the Elements of Value, including higher-order or emotional elements such as ethics, heirloom, and reducing anxiety,” Bain & Company noted.

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Few insurers currently excel at using these elements in their proposition. 

“A traditionalist perspective persists, viewing insurers largely as capital providers and claims payers, not solutions providers. The business case for a broader role can be tough to embrace with a multiyear payback period and new skills required,” the management consulting firm said, adding that broader solutions lead to more engagement with customers, expand the market to new demographic or geographic segments, and can improve a firm’s economics over time.