Habits, Hits, Tails & Tweets:Plus more!

Understanding customer behaviour

Presented By Colin BrigstockFinity Pricing Seminar23 March 2010

Product – level Projections

View of Quantum and

Timing of Price Change

GLM Modelling

View of ‘true’shape by

rating factor

Claims Experience By Segment

Current Premium Structure

Competitor Quote

Analysis

View of competitor shape by

rating factor

View of Competitive Position by Segment

View of Profitability by

Segment

Quote Conversion

RetentionIn Force Growth

Penetration

View of Sales Results by Segment

Possible Changes to

Pricing

Impact Testing

New Premium Structure

Experience By Product

Cost Build Up

ExpensesCat LoadingsReinsurance

Sales Analysis

Sales Data

Demand Curves

WebbotQuote Data

Influences on Customer Behaviour

“Rational” view of customer behaviour

Customers are aware of what they are doing

They know why they do what they do

They make conscious decisions

BuyerBehaviour

ConsumerChoice

CustomerSatisfaction

Customer satisfaction as a predictorof re-purchase behaviour

Satisfaction Levels of Defectors Prior to Re-Purchase

Satisfied80%

Neutral or dissatisfied

20%

Source: Bain Study

Executive Mind

(Conscious)

Latest Brain ResearchYou are of two minds (at least)

Habitual Mind

(Unconscious)

Executive Mind

(Conscious)

You are of two minds (at least)

Habitual Mind

(Unconscious)

Habitual mind controls 95% of human behaviour

“Predicting” future purchase behaviour?

Satisfaction not a particularly good predictor of customer behaviour…

Correlation with customer activity in 6 months after original survey…

Satisfaction Levels of Defectors Prior to Re-Purchase

Satisfied80%

Neutral or dissatisfied

20%

Source: Bain Study

Ranked #1 or #2

0 2 4 6 8 10 12

Likelihood torecommend

Deserves myloyalty

Continue topurchase

Set the standard

Easy to dealwith

Would chooseagain

Innovative

Satisfaction

No of CompaniesSource: Bain / Satmetrix

“How likely are you to recommend XYZ to a friend?”

Probes both dimensions of loyalty…

HeadBest featuresBest serviceBest price

HeartThey know meThey value meThey listen to meThey share my values

By recommending (or intending to do so), an individual is putting at risk some of their personal reputation and trust

Therefore, it represents a much stronger personal commitment than “Am I satisfied?”

Net Promoter Scores

0 1 2 3 4 5 6 7 8 9 10

How likely are you to recommend XYZ to a friend or colleague?

NPS (%) = % Promoters - % Detractors

Extremely Likely

Not at all Likely Neutral

Detractors Passives Promoters

NPS Study 2006

-60-50-40-30-20-10

010203040506070

AAMIAllia

nz QBE

RAC

ING

NRMA

SGIO

CGU

SGIC GIO

Insurer AverageSource: M elbourne Business School Study

NPS Study 2009

-60-50-40-30-20-10

010203040506070

APIA

AAMI

RACV

NRMA

Suncorp

CGU

GIO

Insurer AverageSource: Engaged M arket ing P/L Study

Behaviours: Promoters Vs Detractors

Promoters tend to:Be stickier (higher retention)Buy more products (cross-sell)Be easier to service (lower servicing cost)Give positive WOM (generate referred sales)Provide constructive feedback (enable improvements)

Detractors tend to:Shop around (lower retention)Be single product buyersBe harder to deal with (higher servicing cost)Give negative WOM (discourage potential sales)Provide insight into defects (enable improvements)

Lifetime value exceeds (significantly) direct value of

profit stream from product itself

Lifetime value (significantly) less than direct value of profit

stream from product itself (which in itself is lower)

Is NPS a predictor of desired behaviour?

Progressive Direct (USA)Movement in NPS & Retention

0%

2%

4%

6%

8%

10%

12%

07 to 08 08 to 09

NPS Retention

Allianz Operating EntitiesRevenue Growth % p.a.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Below MarketAverage

Above MarketAverage (excl Best in

Class)

Best In Class

Net Promoter Score

Interpreting Sales Behaviour

An individual customer’s behaviour is difficult to predict but will be shaped by:

past experiences of you (& of competitors)level of engagement and commitment to youHow you present yourself at the touchpoint in question

Sales Performancecomprise aggregation of multiple processesBehaviours in each likely to be quite different

Overall Sales

New Business

Renewal

Mid term

First time insurance

purchasers

Someoneinsured

elsewhere

Existing customer adding further

policies

Strength of Relationship

Endorsement Cancellation

RecentExperiences

Renewal Offer

Instalments

Emerging Influences onCustomer Behaviour

Motor Insurance New Business“Typical” Age Distribution

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 >66

Insured Age

Quotes

New Policies

About 40% below Age 30

Finity Staff Under 30New Policy – How Purchased

Quote Online 11 (100%)No. of quotes obtained before purchasing

• 2/3/4/5 Purchase

Online 9via Call Centre 1Related Bank Transaction 1

% Of Quotes Via Internet

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 >66

Insured Age

Clearly higher(& probably understated)

Finity Staff Under 30Renewals

100% renewed on lineRe-quote experience

“If price not changed much, just pay”“Always get one quote. If within $15 just pay. Over $20 probably switch”“Check every few years”

1st Year Renewal RetentionDeviation from Portfolio Average

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 >66

Insured Age

Propensity to shop?

Online the natural choice of younger generations

How pervasive will this channel become?

What does this mean for your sales metrics?

“As our world is transformed by the Internet and the near-infinite choice it

offers consumers, so traditional business models are being overturned

and new truths revealed about what consumers want and how they

want to get it”

Back Cover The Long Tail

The Long Tail

The tail of available variety is far longer than we realise

It’s now within reach economically

All those niches, when aggregated, can make up a significant market

Mainstream Niche

When I was a kid, buying a bottle of milk…

A bit different today!

When I was a kid, buying a Holden….

Holden: 2009 Model Choices

Car Insurance - Many Online Choices Today

Brand UnderwriterGIO SUNCORPNRMA IAGAAMI SUNCORPBudget Direct Auto & General InsuranceAllianz AllianzYoui Youi Pty LtdING QBEPay As You Drive Car Insurance Hollard Insurance CompanyReal Insurance Hollard Insurance CompanyCommInsure Commonwealth Insurance LimitedFASTR Fortron Insurance Group1300 Insurance Auto & General Insurancee Car Insurance Calliden Group LimitedBingle SUNCORPJust Car Insurance SUNCORPVirgin Car Insurance Auto & General InsuranceApia SUNCORP1st for Women Auto & General InsuranceAustralian Seniors Insurance Agency Hollard Insurance CompanyBeaurepaires Insurance Auto & General InsuranceAustralia Post Insurance Auto & General Insurance1Cover Direct Insurance AllianzQBE QBEANZ Insurance QBEAussie Car Insurance Auto & General InsuranceCGU Insurance IAGOzicare Insurance Agency Auto & General InsuranceHBA Mutual Community General InsuranceThe Buzz Car Insurance IAGShannons SUNCORP

Selection of Car Insurers Quoting in NSW

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

NRMAAAMI

GIOAllia

nzQBECGURea

lBud

getSha

nnonsYOUIAPIA

Just

CarBingle

Comminsu

rePAYDVirg

inAus

Post1C

over

Which brands are registering interest?

Source: Google Insights for SearchNSW Car Insurance related searches in 2005 & October 2009

Oct 2009

2005

Nil Result for 2005

Share of Google Search Activity

Young people –Still a bias towards established brands?

Finity Staff Under 30Which insurers?

Note biased sample – all work in insurance and know brands“Ones we’ve heard of”

AdvertisingWord of mouth

“Less known – must be much cheaper”

Is personal lines becoming a long tail (!) business?

How much will the “real” consideration set expand?

Brand & ReputationThe role of Word of Mouth

Younger people –Still a bias towards established brands?

Finity Staff Under 30Which insurers?

Note biased sample – all work in insurance and know brands“Ones we’ve heard of”

AdvertisingWord of mouth

“Less known – must be much cheaper”

Managing Your Brand ImageTraditional World

“Promoting”Brand advertising

TVRadioPress

Outward PR

Word of mouth‘good’ service experiences

“Defending”Current affairs

TVTalkback radio

PR responses

Word of Mouth‘poor’ service experiences

Largely, an environment where you could control the messages about your brand and deflect most criticism

Important but not really

visible

www.canstar.com.au

www.productreview.com.au

http://forums.whirlpool.net.au

http://forums.whirlpool.net.au

Twitter

Managing Your Brand ImageTraditional World

“Promoting”Brand advertising

TVRadioPress

PR

Word of mouth‘good’ service experiences

“Defending”Current affairs

TVTalkback radio

PR responses

Word of Mouth‘poor’ service experiences

A whole new world is

emerging

Still very relevant.

As effective?

Social media is changing the brand & image management landscape

Word of mouth becoming a “one-to-many”communication

The Web

Forget it as a marketplace of products. Instead think of it as a marketplace of opinionMost products will continue to be sold offline. But in the years to come, more and more products will be marketed onlineNot all industries lend themselves to an infinite variety of products, but all industries have an infinite variety of customersFinally we can treat them like the individuals they are

From Chris Anderson The Longer Long Tail

Final Comments

Internet has already begun to affect the way personal lines is transacted

New behaviours are being formed. Will they become habits?

Change will continue. How fast? How far?

CustomerBehaviour

Brand(Reputation)

ExpandingChoice

Internet

Future Business Model

Are your people, planning and processesready for the challenges?

This presentation has been prepared for the Finity Personal Lines Pricing Seminar held on 23 March 2010.

Finity Consulting Pty Limited (ABN 89 111 470 270) wishes it to be understood that opinions put forward

herein are not necessarily those of Finity and Finity is not responsible for those opinions. The information

presented at the seminar was of a general nature and a reader of this presentation must seek their own

independent advice before using it for any purpose.