This article is by Darren Barker, Commercial Consultant & Lifetime Value SME, Sagacity
Between inflation, rising costs, and the cost-of-living crisis, today’s insurers are facing an increasingly volatile market. Customers are tightening their belts, margins are being squeezed, and loyalty is being eroded.
At the same time, price comparison websites (PcWs) now dominate the space. What was once a tool for savvy shoppers is now the default route to market for most. For many insurers, PcWs now account for 90-95% of customer acquisitions – but it can come at a cost. What’s gained in volume can be lost in value with fierce price competition fuelling a culture of short-term switching.
Recent figures from Deloitte show nearly one in three consumers cancelled or paused insurance products in 2023, due to financial strain. So what can insurers do to turn the tide?
Escaping the price trap
Since insurers mainly compete on price within PcWs, policy pricing has turned into a race to the bottom. Yet such deals often do not result in longevity. Insurers fight for relevance at renewal time, but those low premiums come at a cost: high churn, low loyalty and narrow margins. It’s no surprise that around half of customers stay two years or less with their chosen insurance policies.
Worse still, these ‘spinners’ are often less engaged – which makes it harder to cross sell other products to them. Meanwhile, direct customers – those who come to an insurer whose acquisition channel was not a PcW – tend to be more loyal. In fact, customers who come directly to insurers are likely to spend up to 12% more and stay 25% longer than those acquired by PcWs – giving insurers better margins and stability.
That’s the opportunity. But to unlock it, insurers need to shift from a short to long-term view to understand the value over time.
Unlocking loyalty with customer lifetime value (CLV)
To tackle this growing reliance on PcWs and reduce their impact on insurer’s bottom lines, CLV offers a strategic advantage. Rather than competing purely on price, insurers can use CLV to identify and prioritise high-value customers who are more likely to stay loyal, improving profitability and retention rates.
CLV gives insurers a more complete view of a customer’s value over the course of their relationship. What makes CLV especially powerful is its ability to capture multiple dimensions of customer behaviour and value. It isn’t just about how much a customer spends – it also factors in the cost of acquiring that customer, how long they stay, and even how frequently they engage. This enables smarter targeting, better retention and less reliance on costly PcWs.
For example, instead of offering broad price cuts, an insurer may use CLV data to identify that young professionals who have stable incomes and low claims history, may have higher long-term value. The insurer can then offer tailored perks, such as fast claims processing, to enhance the customer experience and loyalty without eroding margins through blanket discounts. Targeting these high-value groups directly also means insurers can bypass PcWs entirely.
Customer lifetime value in action
Another key application of CLV is in identifying those customers most likely to churn. For example, often referred to as ‘spinners’, a customer who frequently switches providers at renewal time to find a cheaper policy. With the right data, organisations can proactively take steps to retain them with tailored interventions, such as loyalty incentives before their next renewal date.
Insurers can also offer additional policies, such as bundling pet insurance with a home insurance plan to increase convenience and value for these customers. This kind of bundling can strengthen the relationship and help reduce churn.
With margins getting tighter and more consumers switching providers, CLV helps insurers move away from constant price-cutting and focus instead on building smarter, data-driven relationships. To avoid a race to the bottom, especially when it’s not possible to entice customers with bigger savings, differentiation offers a way for insurers to stand out from their competitors. Equally, it can help insurers know which customers to just cut their losses on to ensure that investment goes in the right places.
Winning loyalty when it matters most
Understanding a customer’s lifetime value can be a game-changer for insurers aiming to boost long-term profitability. Reducing churn, avoiding high-risk ‘spinners’, and focusing less on price-driven shoppers can have a big impact on KPIs and marketing ROI.
Rather than chasing short-term acquisition, insurers need to take a more holistic approach – one that values long-term relationships over quick wins. By doing so, insurers can build stronger and more profitable customer bases
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