The importance of customer lifetime value in insurance

COVID-19 has undoubtedly brought the importance of having insurance to the attention of many people. Whether people have or haven’t got insurance, many would have probably started looking into insurance and have done some research to better prepare themselves. Because this pandemic affects everybody at an unprecedented scale, insurers should capitalise on this opportunity to guide their customers to plan for a better future – starting at a young age. 

There are many programmes today that focus on teaching the youth to be financially savvy, and there will be a space for insurers to do the same with insurance. By focusing this work specifically on millennials and Gen Z, insurers will be setting up the next generation with a powerful resource – knowledge.

Raising overall insurance awareness first is important, as this audience needs to be familiar with its basic concepts and confident in its overall benefits before any form of selling, or even communicating specific products. Educating these audience groups on insurance and how it could benefit them will pave the way for insurers and agents to engage with them successfully on specific products.

Create a marketing strategy specific to this demographic

So how can we reach these audience groups? Engage millennials and Gen Z through the digital channels they are most attuned to. These groups are unlikely to respond to the traditional selling methods, so insurers will need to meet them where they are and be present on the digital channels that are most used by these groups. This could include social media and messaging, different apps, and a focus on creating engaging and relevant content that taps into these generations’ cultural zeitgeist. 

Equally important as finding these audiences is showing you understand them and their needs. Insurers can do this by creating products that suit their lifestyles and budget. Approach them with products that actually resonate with them and that they are capable of purchasing. In addition to choosing the right engagement channels and product types, it will be especially important to provide this demographic with simple, straightforward explainers. Millennials and Gen Z are used to absorbing information quickly due to shorter attention spans and the sheer abundance of information available, so product explainers and selling tools should be adapted accordingly.

Why is it so important for insurers to focus on this demographic?

Engaging with this group early will set the foundation for insurers to engage with them as they age. As with any industry, the aging population in today’s world means that insurance is not exempt from the perils of losing customers more quickly than gaining new ones when we look at long-term trends. In fact, insurers suffer from this problem more so compared to other industries as there’s a higher ratio of older customers driving pay-outs and not enough young customers buying insurance. Developing solid relationships from when customers are in their mid-twenties will build trust, especially if this is supported with great customer service. Building trust with young customers is key to cross/upselling other products and fostering advocacy, which every insurer should be striving for.

When we consider the customer lifetime value of young audiences, there are increasing opportunities to sell them a wider range of life, medical and long-term financial planning products as their spending power and age increase. Investing in medical and life insurance early is particularly beneficial to the young customer, as premiums will be lower when they’re young and healthy, saving them money in the early years of their policies whilst providing protection and savings opportunities. As this audience group matures and their understanding of insurance, coupled with their trust in the insurer increases, the insurer will find it easier to sell to this group of customers more complex products like critical illness or investment products, essentially locking them into a long-term relationship.

Where should insurers begin if they want to capture and acquire young customers?

Insurers should start by identifying the specific traits of the millennial and Gen Z audience and build out personas so they have a better understanding of these audience groups. Assessing products and mapping them out from entry-level to advanced so it correlates with the young audiences’ lifetime value helps insurers identify the key customer milestones and opportunities that they can tap into to upsell/cross sell.

Next, they can build out the marketing funnel from raising overall insurance awareness with these audience groups, down to leading them to purchase their first policy. Equip agents with the right sales tools and materials to educate young audiences is also important, and insurers should incentivise agents specially so to bring them in line with the insurers’ objectives. Overall, insurers and agents both have to understand that nurturing long-term customer relationships and increasing customer lifetime value is a long play but one that will reap rewards in the future. As competition such as virtual insurance comes in (who are typically geared towards capturing the attention of young audiences), traditional insurers would have plenty to lose if they don’t start acting now to ready themselves for the future.