What makes a buyer of personal auto insurance a ‘Good’ customer? If we define ‘good’ as ‘profitable’ over the lifetime of the relationship then there are really two behaviors that characterize them:
Loyalty – the willingness to stick with the same carrier and not churn to the cheapest alternative every year.
Honesty – telling the truth about their risk characteristics up front and filing honest claims thereafter.
Of the two, carriers focus on Loyalty far more than honesty. They routinely track loyalty and have programs to recognize and reward faithful customers. Yet the the value of Honesty is potentially far greater. Or more specifically, the cost of dishonesty is much more expensive per case than that of disloyalty.
This prompts some interesting research questions:
- What is the value of Honesty?
- How much of the value of Loyalty is really Honesty? In other words, do dishonest customers jump in and then jump out while the honest persist?
- How can carriers legally reward honest customers? (More carrot, less stick)
- How good are carriers in finding the dishonest in the first place?
- If Honesty and Loyalty are highly correlated then should carriers find ways to reward them more?
Let me know if you have any thoughts or reactions because at VeracityID we’re focused on finding the answers to these and related questions, for Auto Insurance and the P&C industry overall.
