Understanding customer mindsets will save insurance companies
Tags: Insurance, Design, Research, Mindset, Customer Experience

In an age of ever-increasing technological disruption, insurance companies need something much more human: a deep understanding of their customers.

The insurance industry is at a critical inflection point. Finding itself increasingly disconnected from mistrustful customers and unaware of their true needs, traditional insurers are at risk of losing out to a combination of new entrants and incumbents who are quicker to adapt to changing expectations. To survive and succeed, insurers can’t just move faster, they need a clear idea of where to go and which opportunities to pursue.

We recently completed an extensive ethnographic study to truly understand the unique fears, hopes and motivations our customers have and alongside this developed a behavioural framework that provides clear direction for brands and stimulates new ways of creating value for both businesses and their customers.

A difficult climate

The insurance industry faces challenges on all fronts: the speed of technological change and shifting consumer behavior make them ever more vulnerable to new entrants. Existing markets are becoming more and more commoditised, with margins being squeezed in a race to the bottom. All the while companies race to keep up with changes to regulation in an already highly complex and heavily regulated sector.

In this perfect storm, it’s easy to miss new opportunities for value creation based on addressing unmet customer needs. Whilst the fundamental needs to plan for a rainy day, retirement or an unforeseen life event are somewhat timeless, the way we live our lives and the scenarios that keep us awake at night have evolved and multiplied. Alongside this, what we look for in products and services has changed profoundly in recent decades, as forward-thinking companies re-define customer expectations.

The traditional insurance industry hasn’t kept up, relegating customer insight to an afterthought, leading with incremental improvements to tired propositions and segmenting customers by socio-demographics.

Changing demographics, falling trust

The foundational shifts in Western Europe and US society are well documented: on average young people are buying cars, raising families, and getting on the property ladder later than ever (if at all).¹ This delayed ‘adulting’ is accompanied with a decline in traditional support networks and safety nets, such as organised religion and trade union membership, and a rise in lower paid, less-secure employment.² All of which creates an underlying atmosphere of uncertainty and anxiety for many, with most Americans and Europeans believing today’s children will grow up to be worse off than their parents.

This uncertainty about what the future holds should make insurance the perfect product for these fluid times. Yet trust is at an all time low. The financial services sector is the least trusted sector globally, behind automotive, manufacturing, and, perhaps surprisingly given recent privacy and fake news stories, the technology industry.

Going beyond segmentation with behavioural mindsets

To understand why trust is so low, and how to unearth new opportunities for value creation, you need to go beyond traditional approaches that cluster customers based on socio-demographic factors or digital maturity (or even worse, meaningless generational groupings such as ‘Millennials’ and ‘Gen Z’). These ways of grouping customers ignore context, behaviour and psychology, and are therefore poor springboards for innovation.

Instead, Fjord uses design research to develop behavioural mindsets that are rooted in a deep understanding of where the category sits in the lives of customers and their subsequent goals, needs, feelings and beliefs.

Rather than focus groups that foster respondent bias and surveys that skim the surface, Fjord spent three weeks with a cohort of insurance customers from all walks of life, combining diary studies, mobile ethnography and in-depth interviews to understand their aspirations, motivations and mental models used to understand the category.

Meet today’s insurance customer mindsets

Our findings reveal shocking levels of mistrust among customers, but the biggest mistake insurance companies make is assuming customers think about the category in a similar way. Our behavioural mindsets framework reveals this couldn’t be further from the truth.

These mindsets not only allow clients to look at their customers in a new light, but they make sense of existing trends in B2C innovation we’re seeing in the market and point towards new strategies and propositions that can unlock new value and revenue streams.

We uncovered four broad behavioural mindsets, each of which has implications for new propositions:

1. “Optimizers”

Optimizers strongly believe in the concept of insurance and are willing to go above and beyond to find the best cover for them, i.e. invest more time or pay a bit more money. Because of this investment in a better fitting product, they tend to be ‘brand sticky’ rather than brand loyal, staying with a provider because they’ve put the effort in to get the right policy, rather than affinity with the brand.

The opportunity: Optimizers can we won over with bespoke services that are tailored to their needs. A great example is InsurTech start-up Wrisk, that provides dynamic risk scores, bespoke multi-product policies, and adapts to customers’ changing lives. However, whether large numbers of cautious Optimizers are willing to trade big brand security for tailored services from unproven start-ups remains to be seen.

2. “Satisfiers”

Satisfiers just want the basics done at the right price and see insurance as a necessary evil. They rely on trusted third-parties and price comparison sites to get the job done swiftly, using rules-of-thumb that combine brand and price, e.g. quickly sorting policies by price and choosing the cheapest policy from a brand they recognise. Again, this is not brand affinity but big brand familiarity.

The opportunity: Offer Satisfiers clear, simple and transparent policies that address familiar anxieties as well as new fears — such as mental health and caring for elderly parents — whilst helping them avoid the familiar pitfalls of price hikes and loopholes. MoneySavingExpert is one brand well placed to address this opportunity, and already caters to this mindset through its Cheap Energy Club. It’s easy to imagine how this proposition could be replicated across insurance products.

3. “Experiencers”

Experiencers are focused on getting the most out of today rather than planning for tomorrow, and as such see insurance as more hassle than it’s worth. When they are legally required to buy insurance, the minimal viable product does just fine.

The opportunity: Help them buy ‘thinner slices’ of insurance when they absolutely need it, rather than forcing them to choose off-the-shelf products with a 12-month lifespan. On-demand insurance providers such as Trov do this well, providing insurance for specific items during specific times of the day. FinTech start-up Revolut also plays in this space, selling travel insurance as a bank account bolt-on and activating it when the customer leaves the country to ensure you only ever pay for it when you really need it.

4. “Seekers”

Seekers have passions or parts of their life that need optimal cover, whilst for everything else a basic policy (or no policy) will suffice. We met a 38-year-old with three health plans to ensure she had access to the best medical treatments available, including alternative treatments not available through traditional policies, and a twenty-something insurance cynic who made an exception for first-class ski cover for his action-packed winter breaks.

The opportunity: Win Seekers over through policies and services tailored to their passions and built around (and for) their communities. For instance, Bought By Many works with insurers to develop policies and negotiate discounts for underserved customers or those with niche interests, e.g. exotic pet owners or beauty salon owners. It has also recently started rolling out its own unique policies, such as Fixed for Life, a pet insurance policy which never increases in price.

Customer discontent as brand opportunity

In his 2018 letter to shareholders, Amazon founder Jeff Bezos rejoiced in the fact customers are “divinely discontent,” as these “ever-rising” expectations provide ever-increasing ways of creating customer (and ultimately shareholder) value and staying one step ahead of their competitors. Our research has shown that customers can be discontent in meaningfully different ways, which presents opportunities for brands willing to think differently and develop new propositions that solve for these unmet needs.

If you’d like to find out more about all the findings behind Insurance Mindsets, including the product strategies and value propositions aligned to these four mindsets, please get in touch.

This initiative was a collaboration between Fjord London and Accenture Insurance Strategy.

[1] For US data on the delayed marriages, births and ‘adulting’ see ‘The Changing Economics and Demographics of Young Adulthood: 1975–2016’. The UK Office for National Statistics has data on the increasing age at which people get married, as well as the declining rate of marriage overall, as well as the rising age at which people have their first child.

For insightful analysis of why young people drive less, and the long-term factors contributing to a delayed transition into ‘adulthood’ see ‘Young people’s travel — what’s changed and why?’ by Department for Transport.

[2] UK trade union data is taken from ‘Trade union statistics and bulletin for 2017’ by Department for Business, Energy & Industrial Strategy.

For the decline in UK organised religion, particularly among young people, see the Centre for Religion & Society reports on Young People and the ‘No Religion’ population.

For the rise in self-employment, and the fact that 45% of self-employed people between 35–54 years old don’t have a pension, see ONS ‘Trends in self-employment in the UK’.

Research from Resolution Foundation shows that typical self-employed person earns 40% less than an employee.

Tax Research UK (using HMRC data) shows almost 80% of self-employed people in the UK are living in poverty.

See TUC data showing that half of self-employed over 25 yr olds (approx. 2 million UK adults) earn less than the minimum wage.