Leverage driving data for auto insurance price optimization

With traditional ad campaigns, it’s impossible to know whether you’re targeting the best drivers who will ultimately be the most valuable to your business in the long term. Short-term KPIs like clickthrough, quote, and conversion rate can mask the bigger picture, and can result in wasting valuable spend on drivers likely to click and convert, versus those who will be most profitable down the road.

Now imagine your digital marketing team shifts their spend to focus on long-term company goals that are aligned with product and pricing KPIs, such as:

• Better profitability
• Higher retention rates
• Improved customer lifetime value

By shifting marketing KPIs to align with these goals, an insurance carrier can achieve a higher lifetime value to customer acquisition ratio (LTV/CAC) over time, which leads to better long-term profitability.

In other words, it’s critical to align a customer’s long-term value with the amount you’d have to spend to acquire that customer. And companies that are heavily focused on long-term business goals instead of traditional short-term KPIs will come out on top.

So how can digital marketers at insurance companies help the organization meet these goals? It all comes down to leveraging telematics data collected from actual drivers long before they are triggered to shop, and using that data to target the best drivers with ads and offers.

Many digital marketing professionals have likely heard about smarter targeting based on driving behavior data, and even how it can improve the LTV/CAC ratio, but most still need to make the jump.

Why the hesitation? Likely because targeting only the best drivers (and avoiding risky ones) costs more. There’s an incremental CPM spend on top of what they are already paying to target people online. What’s more, the biggest gains happen incrementally and over time, and marketers often want immediate gratification for their efforts.

At first glance, this is completely understandable. Why pay more to reach fewer people, then wait to see the lasting ROI? The fact is that targeting only the best drivers over time results in a 3.3 times more profitable campaign, according to Arity research. A 3.3 times profit multiplier outweighs the extra data CPM cost by a landslide. The marketers who have foresight and patience win in the end.

Consider it this way. Let’s say it costs twice as much — $1,000 versus $500 — to acquire a customer using driving behavior data. And say the average lifetime value of a customer (LTV) is $1,300. With a 3.3 times higher profit multiplier than “business as usual,” you’re looking at a $4,000 LTV for the targeted customer versus a $1,300 LTV for the riskier customer who was cheaper to acquire. Clearly, the $1000 up-front spend is worth it in the end.

As William Blair’s report pointed out, some big brand-name auto insurance providers have figured this out and are already reaching the least risky drivers and keeping them for longer, which is improving their profit margins exponentially.

You likely hear it again and again that driving behavior – as measured through telematics data – is the best predictor of risk compared to any other type of data. While this may be true, there are some challenges:

• How can driving behavior be leveraged before the quote and bind?
• How can telematics data help optimize upper-funnel marketing?
• How do you adjust marketing KPIs to optimize for the most profitable customers, not just the most efficient acquisition?

Need help answering the questions above? Contact us.

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*William Blair Research Partners, July 2020