How to Use Segmentation to Provide More Value to Insurance Buyers

Blog Post
April 10, 2018

Here’s one figure that supports the strength of good segmentation: 31%.

That’ s the return, year-over-year, one of our insurance clients reported after adjusting its direct-to-consumer marketing practices. It’s just one measure of how important segmentation can be in the insurance industry at times of calm. Throw in events that will likely change how the industry operates in the next year or two, and segmentation may be the most important tool for understanding existing and new customers.

Tax reform alone is expected to cause significant shifts in the insurance and banking industries in 2018, from rising mortgage rates to an increase in mergers and acquisitions. Events like these could expose insurers to new and different markets – particularly if the merger is with a bank. Add in a mix of emerging regulatory guidelines from data management to cybersecurity, and an insurer’s current strategies for marketing to specific consumer groups are suddenly at risk of being obsolete.

Now is the time for insurers to review their marketing segmentation strategies—but where to start? We get that most companies have limited budgets for high-level analytics, but segmentation delivers returns that are measurable.

Making the most of the investment is simply a matter of focusing efforts on the anticipated opportunities (and risks) an individual company’s change will present. By doing so, even small insurers could compete with mid-sized rivals.

To get the most out of segmentation, one must keep in mind that the buyer’s journey for each segment is likely to be different.

The Buyer’s Journey

The basics of the buyer’s journey are often viewed as the same, whether the customer is a first-time car buyer looking for auto insurance or someone learning about the new health insurance provider that acquired their old one. There are, in fact, commonalities across all journeys. We believe that there are five overarching stages in the journey that are typical for all who seek coverage:

  1. Problem Recognition—I need to protect my belongings, myself and my family. The buyer’s need is not to own an insurance policy, but to be confident his or her health and belongings (a new car, maybe) are protected.
  2. Information Search—What are my options and who provides them? The buyer researches the best insurance policies and providers through word of mouth, online reviews and marketed offers.
  3. Evaluation—Which of these options is better? The buyer evaluates policy and provider benefits and premiums and ranks them to assess the best fit.
  4. Purchase—Eureka! The buyer finds the right policy to meet his or her needs, possibly taking advantage of a new-customer promotion or bundling incentive to make the purchase.
  5. Post-Purchase Evaluation—What a great choice. The buyer determines if the policy and provider have met or exceeded expectations. Note that often these expectations cannot be measured immediately because insurance services are not used daily.

While most consumers will journey through each of these stages at some point in their path to purchase, the details of these journeys vary by customer. There are also special considerations when industry shifts cause alterations within segments. To be part of a consumer’s journey, insurers must know who the buyers are and exactly what they are trying to accomplish.  Segmentation helps tease out the fine differences and how an insurance provider can cater to them.

The 3 Steps to Segmentation

  • Meet your new and current markets. Define your existing market segments and identify within them the sub-segments that represent the best long-term opportunities (life insurance for a young family, or something as specific as boat insurance). Here’s a step-by-step on how to complete this segmentation exercise. These opportunities can be surprising—one insurance company identified affinity households (households that buy through a common-interest group like a frequent flyer program or college alumni group) as 76% more valuable over their lifetimes. To build on their value, they identified several well-performing growth areas, as well as attributes of those groups. For example, those in one group were 37% were more likely to request a multi-line quote.
  • Measure the effect of change. Now it’s time to test out your data analytics and model how a change in your operations (such as a merger or insurtech innovation) would affect existing and new segments. Let’s consider those boat owners. The segmentation exercise could uncover growth opportunities of this sub-segment—perhaps unveiling new lower-rate opportunities for boat policies. The operational change could then be used to optimize marketing content and conversations. In this example, the brand may decide to employ a multichannel, multi-product strategy focused on specific needs for boat insurance customers.
  • Tailor your marketing communications. The next step is to see if the underpinnings of your segmentation float. The company’s existing segments, say auto policyholders, should be alerted to the need-specific opportunities a merger or other change in operations presents (for example, great new borrowing rates). Meanwhile, new segments, say those with mortgages, can be alerted to other perks, such as bundling discounts or that terrific boat coverage. In the case of one of our insurance clients, analytics helped focus marketing spending on reaching members of a specific affinity or common-interest group at optimal times. The result: by 2020, its affinity households are projected to reach more than $2.5 billion in premiums.  

Segmentation is just the first step to understanding customer needs. However, like the first rung in a ladder, it’s essential to successfully ascending to the next level—building relationships with the right customers. Be sure you have the right tools and talent that meet your budget, either in-house or through a third-party partner you trust.

To learn more, check out our segmentation overview and how it fits into our Five Pillars of Best-in-Class Marketing.