Painting an insurance master piece

Market segmentation is not new. It is simply a marketing strategy which involves dividing a broad target market into subsets of consumers who have, or are perceived to have, common needs, interests, and priorities, and then designing and implementing strategies to target them.

This approach enables a market oriented business to provide marketing mixes that are crafted to appeal to its respective segments.

What is new is the ability to reduce the size of the segments due to the availability of emergent techniques and capabilities. Doing so unlocks the opportunity to personalise the marketing mix for these micro-segments and then to capture value by providing a truly targeted value proposition to distinct clients.

Go big

The emergence of Big Data and the ecosystem underlying the analytical capability to deliver insights is opening new vistas of opportunity to better understand consumer behaviour.

The ability to segment by psychographic, behavioural and emotive criteria using sophisticated techniques such as latent variable modelling to draw insights from both unstructured and structured data is providing companies across industries with immense opportunities. One is to speak directly to what consumers want in a manner that actually engages them.

In effect, algorithms are developing to the point where they are able to make significant inferences about an individual’s consumption preferences based on the available data.
Companies are able to use these inferences to make targeted offers, which may include a set of bundled products, to these individuals. The thinking is that by doing so, the company is more likely to make a sale and improve its closing ratio without increasing its cost of sales therefore improving its overall sales margin.

Data mining

A number of firms have invested heavily in infrastructure to capture data to be able to move to this step of analysis down the line. For instance, store cards are typically used to track consumer behaviour by retailers and to customise offers to individuals.

In the motor insurance world, applications are available to monitor driving behaviour with the potential opportunity to then make discounted offers to drivers who are found to actually exhibit safer driving styles. These are tracked and monitored by the application itself.

Wearable technology provides yet another rich vein of data to be tapped as physical activity can be monitored in a real time basis to provide insurers with the insights needed to price on a more sophisticated basis. Data is the new oil, and there is a rush to get as much as possible on consumers and potential consumers to be able to unlock the insights that provide a tangible competitive edge.

In a world of choice, being able to deliver on customer expectations better than one’s competitors is critical; the data provides a company with the means to understand what those expectations on an individual basis.

Let’s get personal

The traditional view of insurance, that it is a grudge purchase that needs to be sold, may be challenged by gaining the insights that enable one to identify who is predisposed to buy a particular type of product, when they are likely to do so, and how best to influence that person, all without having ever spoken to them. That is the promise of deep insight.

As an industry, we should be engaging with such developments as a key risk faced by traditional providers, advisers, and the entry point of disruptive business models that are better able to understand consumer needs.

They are also better able to engage consumers in a contextually compelling manner and are better able to meet those needs at prices that are uniquely determined based on previously inaccessible data. This poses an incredible and emergent threat but also an opportunity to leverage such capabilities to add even more value to clients’ lives.