Identifying Segments in Insurance Customers

Insurance Marketing

Marketing of Insurance Service to achieve increased customer orientation and generation of profit is called Insurance Marketing. Formulation of an ideal mix for insurance business is the main focus of Insurance marketing. The core and peripheral services can be improved by following an appropriate service mix. The marketing concept enables the insurance business to expand business in the best interest of society as well as the insurance organization.

Price competition does not automatically mean better value for the customer. Customer interactions have become short-term and transaction focused while long-term value creation for the customer and engagement declined.

When taking the perspective of the insurance provider, we encounter a different problem. Decision making within the current organizational structure of many insurers is not optimally designed to offer a competitive premium and control for both volume and a healthy combined ratio.

This is caused by conflicting interests between departments, in this case the marketing and the actuarial department. The marketing department is mainly focused on volume. Their objective is to attract as many new clients as possible and to let the insurer’s portfolio grow. The objective of the actuarial is to control for a healthy portfolio in which claim expsenses does not exceed premium income. These two deviating objectives have brought the insurer into a vicious circle. The marketing department is mass targeting with the premiums they receive from the actuarial department, not able to pay attention to differences in risk profiles and thereby attracting customers with high risk profiles which are jeopardizing the state of combined ratios. In reaction to this the actuarial department is compelled to increase premiums on a general level, which in turn makes it even harder for the marketing department to attract profitable customers, as these profiles will get better offers from competitors who take risk profiles into account and are able to set lower premiums for low-risk profiles. This process fueled by different department incentives is not beneficial to the organization as a whole.

Tear Down Those Silos

To become profitable again and at the same time increase the volume of portfolios, insurers have to start thinking outside the existing silos and optimize business decisions on an organization level. Decisions need to be taken from the perspective of the customer based on all information within the organization, not by separate silos. By doing this the insurer can become truly customer-centric and the vicious circle will be broken.

Market Segmentation in Insurance

So how should the actuarial and marketing departments join forces to attract the right customers? Which customers are contributing to the profitability of the portfolio and are willing to form long-term relationships? Based on the available data in the organization, profitable customer segments can be discovered by segmenting the portfolio on predicted Customer Lifetime Value. Data Science & Machine Learning techniques can be used to identify new customers in the market which are valuable over their lifetime based on learnings from the existing portfolio. Algorithms analyzing the current portfolio distill characteristics of customers that bare high and low risks. The marketing department then has the relevant knowledge to attract similar customers having low risk characteristics, improving combined ratios. Premiums can therefore be lowered, increasing the competitive edge of premiums in the market. On top of that, marketing propositions can be adjusted to the specific segments to create a better fit between insurance product and policy holder, increasing the added value for the policy holder and thereby increasing loyalty.

Market segmentation in the insurance organization

Markets are segmented into different customer groups. Each product or services is tailored to match the needs of the customer group. The segmentation helps the insurance organization in dividing the market into small segments where the customer needs are identical.

Market for insurance is divided into segments and sub-segments. Segments include

• Household sector
• Industrial sector
• Trade sector
• Institutional sector
• Region-wise sector
• Rural sector

The household sector is a segment which is subdivided into

• Salaried class
• Self-employed
• Retired employees

The industrial sector is subdivided into

• Public sector
• Private sector

Likewise, the other segments are subdivided into appropriate sub-segments.

Significance of segmentation to the insurance business

1. Market segmentation is very important to an insurance organization. In insurance business, the prime focus is on the policyholder. Insurance marketing aims at transforming the prospects into policyholders. Market segmentation enables the insurance marketer to identify the level of expectations of the policyholders.
2. Insurance organizations capitalize on the available opportunities in market. They need to increase their market share constantly. Market segmentation in insurance business helps in informing, sensing and persuading the different segments where the potential users are available.
3. The insurance professionals can do business in all segments, such as rural and urban, men and women, agricultural or industrial and so on. Segmentation makes it possible to spread the insurance business even to the agricultural sector of the economy which is predominantly rural-based.
4. With market segmentation, the insurance organizations become aware the changing needs and requirements of the rural sector and shape their services accordingly.
5. Knowing and understanding the market is considered significant to the insurance professionals since the segmentation process helps them in scanning the changing needs and requirements of the rural sector.
6. A study of segmentation would help insurance professionals in formulating a sound marketing strategy. The product mix based on market segmentation would be competitive. All the prospects would have additional attraction in using the services.
7. The segmentation would help insurance professionals in making the promotional measures creative. It would be instrumental in sensitizing the prospects. The advertisement professionals would make advertisement appeals, messages and campaigns proactive to the receiving capacity of the target audience.
8. The pricing decision can also be rationalized and the weaker sections of the society would get substantial benefits. In view of the above, it is appropriate to say that segmentation is very important to insurance professionals. It transforms the prospects into users.