Designing the Right Rewards Program for Insurance Customers
POSTED : June 4, 2014
BY : Clay Walton-House

This blog is the first in a four-part series. This particular post focuses on the insurance industry and key considerations for loyalty marketers managing an existing rewards program or building a new rewards program. The following posts in this series will cover the banking, retail, and high-tech industries.

Designing the right rewards program for insurance customers

Insurance Customer Engagement & Objectives

The first step in developing an effective rewards program is to understand the customer and how they engage within the industry. With regard to the insurance industry, customers have a relatively low level of engagement with their insurers. That said, there are few key experiences across the insurance customer journey, each one of which needs to be managed successfully to ensure customer satisfaction. Insurance customers not only demonstrate low engagement but also low churn, and because of this, loyalty marketers should focus on long-term retention and optimizing customer experience around key “moments of truth”, including the quote, enrollment, billing, renewal, claim, and coverage adjustment experiences.

This post discusses important considerations and opportunities for loyalty marketers in the insurance industry, in order to both optimize key customer experiences and meet marketer objectives with the help of the right rewards program.

Retention levers

Three primary retention levers are available to loyalty marketers are: (1)

  1. Perceived value
  2. Affinity
  3. Barriers to Exit.

Each of these levers presents varying levels of utility for influencing customer behavior based on the specific business and customer base to which they are applied. Rewards programs themselves seek to manipulate these levers as a means for influencing customer behavior.

For the insurance industry, all of these levers offer some level of utility, but one stands out as the most effective in influencing customer behavior—Perceived Value. Value, above all else, is the key driver of customer satisfaction with an insurance provider. Insurance products are largely replaceable by nature, as customers can easily swap like-for-like coverage products. Therefore, customers are more likely to be influenced by Perceived Value—feeling that they have coverage at a competitive, fair price—than they are by the alternative retention levers, Affinity and Barriers to Exit.  Attempting to build an emotional connection (Affinity) with insurance customers may prove to be of limited value due to the commoditized nature of the product. Implementing tactics that make it harder for customers to leave (Barriers to Exit) may in fact increase their desire to exit if they are not getting the value they desire.

For these basic reasons, Perceived Value is the retention lever that offers the most utility to loyalty marketers in the insurance industry, and should inform the development of a rewards program strategy.

For a full explanation of retention levers and Earn Models, and how they should influence rewards strategy and design, download the complete whitepaper.

Rewards Earn Models

Earn Models determine how customers realize value in the form of benefits, rewards, or currency—points, dollars, etc. The dynamics of how customers earn value will not only significantly impact their experience with the program, but implicitly help or hinder a marketer’s control over various retention levers. In addition to impact on customer experience, Earn Models are also the primary driver of program costs.

Understanding the different types of Earn Models, and the associated tradeoffs is imperative for the creation of successful programs that mitigate the risks of low customer engagement and costly operations.

The four primary Earn Models are:

  1. Membership
  2. Threshold
  3. Interval
  4. Stored Value

Rewards are becoming standard practice in the insurance industry. Many companies are automatically enrolling customers in rewards programs, giving experiential rewards upfront. One example is providing forgiveness benefits, processing minor claims without raising policy rates. Insurers should communicate these automatic program enrollments to increase Perceived Value and optimize the customer experience from early lifecycle touchpoints. Rewards often increase with tenure, allowing customers to save more the longer they keep their coverage. This program design reflects the Threshold Earn Model, which is an effective way to increase the lifetime value and tenure of insurance customers.

One insurance company effectively using the Threshold Model is Progressive, who offers small accident forgiveness and quality repair shop services immediately upon enrollment, and large accident forgiveness along with prioritized customer service after meeting certain tenure thresholds.

The Threshold Earn Model attributes value when program members reach a pre-set target for a given behavior – often spend, engagement, or tenure. When a customer reaches the defined threshold for that behavior, value is awarded. Typically, with each higher threshold comes increasing Perceived Value. Of all four models, the Threshold Earn Model presents the greatest opportunity for loyalty marketers in the insurance industry to encourage long-term retention and optimize customer experience.

Key program design considerations

Loyalty marketers in the insurance industry should consider the following market and customer dynamics to optimize rewards program design:

  1. Understand Customer Lifetime Value, and reward the highest value customers. Most insurance customers will become more valuable with tenure, and so should the rewards they receive. Consider future customer value, not just current value, and develop a rewards program that evolves with the journey of the target customer.
  2. Focus on the moments of truth within the customer experience. Insurance is a low engagement product, as customers typically make automatic payments and may only engage on a yearly basis for policy renewal. The customer experience at each touchpoint should be optimized, as one good or bad experience could determine whether the customer is lost instantly or retained for life (ex: making a claim).
  3. Offer affinity brand rewards to heighten customer engagement and create positive brand associations. Insurers should consider partnering with companies that provide related services or products like gas stations, oil change shops and repair shops. Progressive Insurance does this well, offering the instant benefit of repair shop speed and quality upon enrollment.
  4. Combine technology and rewards to streamline the customer experience. Encouraging customers to self-serve online and via use of a mobile application makes claims less costly for insurers, as it frees up customer service resources to engage in higher-value interactions. Online and mobile channels allow for increased customer engagement and greater convenience across all touchpoints in the customer journey. Mobile engagement will enable easier cross-sell and up-sell, and will also facilitate the integration of rewards.

In summary, it is imperative that loyalty marketers in the insurance industry maximize Perceived Value and optimize key customer experiences to drive retention. Designing and implementing the right Earn Model is critical in this industry where rewards programs are standard practice and increases in the customer’s perceived value often yield the greatest return on marketing investment.

About the Author

Clay Walton-House serves as managing director of Integrated Loyalty Solutions at Concentrix Catalyst. He helps Fortune 500 companies create and implement new customer engagement strategies that accelerate growth and build loyalty. His expertise lies in understanding consumer behavior and translating it into actionable customer insights. Clay has a proven track record of successful loyalty program design and optimization, helping uncover ways to build retention and loyalty strategies into a company’s broader business model.

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